Inflation in Mexico

A short history of inflation in Mexico

The Debt Crisis (1982 to 1988)

Mexican inflation peaked at 179.7% in the year to February 1988. The cause was the debt crisis that began when Mexico announced in August 1982 that it could no longer service its foreign borrowing, an announcement that closed international lending to most of Latin America. Cut off from credit, the government financed itself through the central bank, and the collapse in oil prices in 1986 removed the revenue it had been counting on.

The Pacto and After (1987 to 2001)

It was ended by an agreement rather than by monetary policy alone. The Pacto de Solidaridad Economica of December 1987 committed the government, business and the unions simultaneously to holding prices, wages and the exchange rate, breaking the expectation that each would keep chasing the others. A new peso replaced the old at a thousand to one in January 1993, the Banco de Mexico was made autonomous in 1994, and Mexico moved to a formal inflation target in 2001.

Post-Covid Inflation (2021 to 2023)

In Mexico, prices rose fastest in September 2022, at 8.7%. The causes of the post-Covid inflation were global in nature, beginning with the lockdowns: factories and ports closed and the shipping between them fell out of sequence, so goods took longer to make and longer to arrive. Governments had spent heavily supporting household incomes through those closures, so when restrictions lifted there was money waiting to be spent and not enough on the shelves to spend it on. Then in February 2022 Russia invaded Ukraine, disrupting two of the world's largest suppliers of wheat, fertiliser, oil and gas at once, and the cost of everything grown, heated or transported rose with them.

Because the causes were shared, so was the timing: most countries peaked within a few months of one another in late 2022. The major inflation events covers this episode and the others in more detail.