Mexico: Food price increases and growth constraints

This paper uses dynamic panel techniques to evaluate the extent to which Mexico’s consumer price index will be affected by food price inflation in the long term. We argue that sharp increases in international food prices (of the type seen since 2001) are likely to persist and to reinforce domestic growth constraints in Mexico. Our results suggest that in an economy like Mexico’s that is highly dependent on imported food, the consumer price index will be noticeably affected by international food price increases. Conducting monetary policy without reference to the structural issue of food price inflation is therefore likely to be ineffective in controlling inflation and could be damaging in terms of its impact on demand and growth. Thus, the revitalization of the Mexican agricultural sector should be a centrepiece of future counter-inflationary policy.