Economics: Rising inflation and wage expectations could complicate the 2022 outlook
The average contract wages of formal sector workers experienced significant gains in the past three years that stand in contrast to the largely flat trajectory of hourly income during the previous ten years. However, those increases have not coincided with improvements to labor productivity nor economic growth and can be largely traced in part to the first in a string of considerable minimum wage hikes starting in January 2019, as well as an arithmetic mathematical effect in the average given the extent of lower-paying job losses during the 2020 economic contraction.
A number of very specific factors meant that the wage gains of the past two and a half years failed to translate into company cost-driven inflation pressures, but those conditions may be changing. A case in point is an anti-outsourcing law that has forced employers to add many workers to their formal payrolls while contract wage settlements have outstripped inflation by more than 3 percentage points though the first half of 2021. That trend moderated considerably in recent months, but we could start to see more pronounced wage gains should we continue to witness a deterioration of inflation expectations capable of contaminating contract wage negotiations next year, with another major minimum wage hike likely in January, factors that could begin to drive price formation throughout the economy.
We got a reminder on Friday of just how much price pressure continues to mount as consumer inflation accelerated considerably, to 6.12% during the first half of October, 15 basis points above Banco de México’s most recent guidance for the fourth quarter.
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