Economics: Labor Market Weak Spots
The labor sector of the Mexican economy has in recent years experienced an acceleration of growth in formal sector employment, as well as a steady decline in rates of joblessness, underemployment and informality. These developments are clearly positive in their own right, but they have by no means translated into a strengthening of wages and benefits or household buying power. In fact, the strengthening of employment indicators has been accompanied by an erosion of remunerations.
Moreover, the increase in payroll jobs has been largely confined to specific regions and sectors of the Mexican economy. Most of the growth has been in the most industrialized states, even as oil-industry intense states such as Tabasco and Campeche have experienced a net loss of formal sector jobs as they have been especially hard hit by job losses in the oil industry since 2015.
In this week’s Economic Outlook we analyze the recent evolution of the labor market and its main indicators since the labor reform was first passed, following the 2012 elections.
In other economic news, last Thursday Banco de México announced that its board of governors had unanimously voted to raise its same-day interbank lending rate (TIIE) by 25 basis points to 6.75%. The TIIE had not been that high since April 14, 2009. In the statement accompanying the rate hike, the Central Bank said it seeks to keep inflation expectations from contaminating price formation in the Mexican economy, and anchor those same inflation expectations. The authority also said it hoped to strengthen the contribution of monetary policy to the effort to bring inflation back in line with the authority’s target.
According to Banco de México, headline inflation continues to trend higher. The 5.82% CPI reported for April is the highest level seen in almost eight years and one well outside the central bank’s 3% target range with a tolerance ceiling of 4%. The additional pressures were mainly driven by the rise in energy prices that reflected a major hike in gasoline prices at the beginning of the year, as well as increases over the past month in prices for some agricultural prices and last month’s hikes to urban transit and other automotive transportation fares.
In its statement accompanying the rate announcement, the bank said that the balance of inflation risks has deteriorated moderately while that of economic growth also sustained its downward trend.
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