Economics: Inflation and depressed growth mean that recent wage hikes pose new hurdles for economy
In a context of high inflation and clear signs of economic weakening, we estimate that collective bargaining wage negotiations in the coming months will be contaminated by deteriorating inflation expectations and represent an additional obstacle over the medium term to slowing the pace at which prices continue to rise. Collective bargaining negotiations during the first quarter of 2022 produced real-term increases in working salaries as such talks have begun to take into account rising inflation, both on the level of specific sectors and throughout the formal sector, judging by Social Security (IMSS) data. However, given the extent to which the pace of growth in informal employment has accelerated in recent months and total labor-related earned income has been trending lower, we estimate that jobs are being generated in the informal sector of the economy, for which pay shows a real-term decline relative to pre-pandemic levels.
In this week’s Outlook section, we analyze the recent evolution of the earned income levels of Mexican households as well as its implications for the medium term. The most significant economic indicator last week was the National Consumer Price Index for the first half of April, which at 7.72%, was roughly 10 basis points higher than the market had anticipated, with prices rising across most categories of goods and services despite being tempered by a decline in residential electricity rates as seasonal subsidies began in a number of cities. The 7.16% core rate was the highest in more than 21 years.
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