Low wages retain the inflation

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Between 2001 and September 2015, the raise in minimal salaries has been only 30 cents of a Mexican peso annually in real terms. The annual average inflation of 4.1% in the period results from the low wages to which a majority of the population is doomed.


Between 2001 and September 2015 the planned annual average inflation in Mexico was of 3.8%. The reach was of 4.1%.

The annual average raise of the minimal salary was of 4.6%, equal to 2.28 Mexican pesos daily every year. Its gap with the expected inflation was of 0.8 percentage points. Leaving the effect on the prices out, the real minimal wage would have obtained an annual average gain of 1.2%, equal to 70 real cents annually or 11 pesos daily accumulated for 15 years.

With the inflation that was reached, the difference in favor of the minimal wage reduced itself to 0.5 percentage points; 0.6 percent more annually real terms; with an improvement of only 30 cents daily annually or 5 real pesos accumulated in this period.

The annual average inflation of the basic basket was of 4.5 and its difference with the nominal increase of the latter fell by 0.1 percentage points annually. Deflated from the basket its real annual increase was reduced to a minimum:  0.1 %; 6 real cents daily every year; 90 cents accumulated additionally for the time being of this century.

The generosity of the governments and businessmen is a statistical illusion insultingly touching.

The latter statistical exercise unveils the sloppy “judicious” and “responsible” munificence monetary and neoliberal fiscal discipline. The only possible economic “exit” and viable policy being for Agustín Carstens-governor of the Bank of Mexico (Banxico)-, Luis Videgaray –Secretary of Finance and Public Credit-, Enrique Peña Nieto –President of Mexico-, the members of the PAN and PRI, that is unlikely to produce inflationary pressures, macroeconomic turbulences, losses in the profit rate and benefits for the impoverished employees.

In any case it could be said that the stabilizing sequels upon the salaries has seemingly not been dramatic. Out of the 55.3 million of Mexicans whose income does not satisfy the basic needs of subsistence, in 2014 –according to the official accountability almost 2 billion more than in 2012-, only about 7 thousand persons have been imprisoned and received exemplary punishment with sentences of up to 10 years, for engaging in “near-starvation theft”, i.e. because of hunger. They represent a statistical bagatelle. The rest are poor, miserable, halfway starving but honorable people, due to a conviction or a lack of entrepreneurial creativity.

Fortunately, the latter is not the case of the political-entrepreneurial elite

Not even the governor nor the four Deputy Governors of the Bank of Mexico could complain about their modest salary, 7.6-8 thousand pesos on a daily basis in 2015, or 227-239 thousand pesos monthly, or 110-115 fold the minimal salary, that allows them to overcome the hardship of the deflationary salary contention.

In his work Objective and Operation of the Bank of Mexico, the Deptuty Governor of Banxico Manuel Sánchez says that “ultimately the inflation is a monetary phenomenon” –remembrances of the friedmanian Dogma: the inflation is, always and anytime, a monetary phenomenon-, the discipline has been bearing its fruits.

The monetary policy

Since 2001 when the Banxico applied the strategy based on objectives of inflation (“which means that the monetary policy is “anchored” on the compromise that the tools to reach the announced objectives are applied”), the inflation fell to one digit.

Two years later the prices tended to scratch the annual goal of 3% +/- 1 percentage point, fixed back in 1999 for 2003. In 2008 with the changes in the target rate, what is intended is to influence the public expectance, and thereby among other instruments, over the future evolution of inflation.

For the surprise of the unshakable central bank –rumor has it that the “technicians” reject the easy applause: they are phlegmatic without ripping-, month by month, between March and September 2015, the annual rate of inflation has dropped systematically from 3.14% to 2.52%, locating itself in the lower margin of the goal, in its lowest level since 1970, when the register of national index of prices to the consumer was starting. By the end of the year the inflation will converge with the 3% objective.

This rate also equals to the level of prices that characterized the so-called (de)stabilizing development (1954-1970) that mythical paradise lost of the “Mexican miracle” craved by the neoliberals: 4% annual growth.

Carlos Salinas (former president of Mexico), Pedro Aspe (former Secretary of Finance under Salinas) and Miguel Mancera wanted to revive it, throughout a failed monetarist-heterodox stability program: fixed currency regimes (announced macro-devaluations) whose real accumulated over-evaluation (25% in November 1994), sustained temporarily by the paranoid speculative capital flows, serves as a disinflationary anchor.

The result of the disaster originated in the administration of Salinas and inherited to the one of Zedillo that was unable to resolve the enigma of the flight of speculative capital during the second half of that year, it was the macro-devaluation of 52% between December 1994 and March 1995.

Thus started the disastrous era of the “autonomous” central bank, inicially administered by Mancera, the emblematic patriarch of the ITAM of the Chicago Boys and first governor of this institution, who José  López Portillo dismissed in 1982, accusing him of disloyalty, and replacing him by Carlos Tello Macías, probably the only worthy director that this institution has had in time.

This tragedy repeated the history of the destabilizing developing-minded persons. They fixed the exchange rate at 12.50 pesos for a dollar in those years, in 1954; they closed the historical cycle with an over-evaluation of 35% in 1970, and transferred the time bomb to the populistic administration of Echeverría that could not deactivate it and that exploded in 1976 with a devaluation of 60%.

With this crisis the era of IMF stabilizing policies were inaugurated that endure until now, with their variations of free float, inflation targets among others.

Now Peña Nieto, Luis Videgaray and Augustín Carstens think that they scrath the neoliberal utopia with monetarist experiments of inflation targets sustained by a high interest rate, compared with the US one and an overrated exchange rate, nevertheless that this one floats as a globe since 1995, swaying between evaluation and devaluation, sometimes smoothly, at times violently, by the breeze or whirlwinds of the speculative capitals.

It could be said that in 2015 the inflation is almost under control, which, to say by the Deputy Governor Manuel Sánchez, generates a favorable environment for growth, a reduction in exchange rates and so that “the families could make better decisions over the purchase of a car or a house, and that the companies decide on when and how much to invest, open business and create jobs”.

…If the salaries allow it. As for the future raises, that until now, will not depend on the recovery of the purchase power lost, due to a simple reason: that is not the aim of the monetary policy. Neither is it the economic growth. The priority is low inflation. The proposed economic policy for 2016-2018 sent to the Union Congress is the rate of 3% annually. Around it are the rest of the targets.

The control of inflation requires a severe austerity for the rest of the government of Peña Nieto


In 2016 the real projected expenditure will fall by 5.9%. By itself in the year 2015 it has suffered Videgaray’s scissors. It will be the worst reduction of the last 13 years. Only in 2004 and 2010 it had went back by 0.1% and 0.2% respectively. But it will not be an exceptional year, due to the lesser expected petrol incomes and the decision to reach the fiscal zero balance by 2017. In 2015 the projected expenditures was estimated to be 20.1% of the Gross National Product (GNP), but it will be of 19.6%. In 2018 it would reach 16.9% of the GNP, according to the Secretariat of Finance.

This Secretariat estimates that the main contribution to growth in 2016 will not be the domestic market (the consumption and productive investment), affected by the contractive effect of public expenditure, but rather the exports. The contribution of consumption to expected growth will be of 2.3%, 2.8% % and the external sales of 3.2 % in 2015.

Unfortunately the primary-export cycle of the petrol has concluded and even Carstens, normally out-of-reality, said that the recovery of the US economy will not provide Mexico with the necessary boost to achieve the growth rates that the country needs.

The wages will remain dependent on the same variable that has slowed down the recovery of the purchase power since 1983: the annual target prices, the productivity and the competitiveness; the attraction of foreign investment that demands low wages as the current ones; the labor counter-reform of 2012 that warranties legally the workers to remain poor, precarious and “flexible”; the high yields to attract and keep the speculative capital. The financial profitability over the productivity will prevail (see graphics 1 and 2).

In the midst of past October at the Commemoration of the 90th anniversary of the Bank of Mexico, Videgaray boasted himself  because the real wages grew by 1.3% from January to September, which represents “the major growth of purchase power of workers since 2001”; he exalted the low inflation, the reduction of open unemployment in August (4.68%), placed at levels below the ones of the crisis of 2008; the rise of consumption; and for the creation of around 1.6 million formal jobs during the administration of Peña Nieto.


The wages, same as in 1953

If something has to be pointed out of Carstens is his honesty: his disposition to sacrifice the wages before the inflation.

On the other hand Videgaray is an agnologist in his obsession in becoming the future president of Mexico.

Robert Proctor, a US professor of the history of science of the University of Stanford coined the term “agnotology” to describe how throughout the use of inaccurate or misleading data ignorance and deception is induced.

What represents an improvement of 1.6% in wages?

It is an accident, due to the unexpected lesser inflation in relation with the expected one, which by the way, reflects the symptoms of a recessive economy. It is not the logical consequence of a deliberate public policy. Measured by the prices to consumers only recovered by 0.1% in 2013 and 2014.  Deflated by the basic basket it lost 0.8%. In 2013-2015 the average was favorable for the wages by 0.6%.

What do some cents more mean if at the start of the administration of Peña 1 real peso of 1976 were equivalent to 23 cents?

A real minimal wage of 2015 is similar to the one existing back in 1953 (39.85 daily pesos at current prices). In a strict sense it is the worst paid since 1934 when this type of payments were created.

The improvement of purchase power of wages is no more than a deceiving fairy tale of Videgaray, as well as the one of the employment.

Every year at least 1 million new jobs are needed. For each job created in the being during the presidency of Peña, another person did not found any. That every six person out of 10 of those occupied are classified as informal, a similar level existed at the beginning of the current government. The employment rate in December 2014 was 3.8% and in the same month in 2012 of 4.4%. Both lesser that in August 2015, presumed by Videgaray, thus it did not return to its level of 2008. It was only a circumstantial data more.

The structural incapacity of the economy to create formal jobs required annually has compelled the workers that achieve to get one, to accept low wages, the cut in social benefits or the elimination of them, and the bad working conditions threatened by the fear of being thrown on the street instead. Being dismissed implies the possibility of remaining marginalized for the rest of their lives.

The official trade-union control strengthens the obscure scenario. With the imposed poverty and misery as a raison d’état and of the market, the workers are contributing to the deflation.

Manuel Sánchez philosophizes: “With high inflations the economies tend to grow less [and] tend to increase their volatility, which obscures the signs of relative prices and raises the uncertainty of the public”. “When there is price stability, the economy can expand in a sustained form”.

Between 2003 and 2015 the average inflation has been of 4.1% annually, around the target of 3%, +/- 1 percentage point, however the average growth has been barely of 2.5%.

Joseph Stiglitz has been criticized for the useless trend of target prices and the recessive risks of low inflations.



The technocrats of the Bank of Mexico have statistical reasons to feel surprised by the evolution of inflation during the current year.

Those whose reality has been obscured are the people of Peña. Every now and then the “hawks of the inflation” (dixit Stiglitz) warn about the catastrophe that would represent that the genie of the prices escapes from the bottle, as would ironically say Joseph Stiglitz, Nobel Price of Economics in 2001, in his work Central banking in a democratic society of 1998.

He has always warded off the costs of a high level of prices and the difficulties to reestablish its stability: its harmful effects over productivity and competitiveness of the enterprises and the economy, the growth and employment, the purchase power of the population and the living standard.

control-inflacion-300When they can, and in order to justify the neoliberal orthodoxy of the restrictive monetary policy and the fiscal austerity that has prevailed between 1983 and 2015 and that it would be kept until 2018, they threaten with the “dramatic instability of prices”. As did Manuel Sánchez of the Bank of Mexico –imposed as Deputy Governor by Felipe Calderón, and before that educated in the monetary school of Chicago-, in 2010 when remembering that phase registered between 1973 and the end of the decade of the 1990’s. This dramatic period was characterized by the “ravages of the elevated and volatile inflation” that “averages over 38%” annually and “reached a maximum of 180% [in February 1988]”; the economic disorder; the permanent lag of salaries in relation with the inflation; the repeated devaluations of the peso in relation with the dollar, the extended contraction of the investment and economic growth; the painful rise of poverty, among other pests.

For these and other reasons they worship what Manuel Sánchez qualifies as the “responsible and judicious fiscal and monetary policies”, i.e. those that they applied themselves, which equals to praise themselves: the stabilizing neoliberal austerity that punishes consumption and productive investment throughout the contention of real salaries, the public expenditures and high interest rates. In opposition to the “populism” that strangely Peña Nieto recently has dedicated to lunge confusingly and off-key (without defining the concept); crossed with the one, in an act of solidarity, presidentially and equally diffused of Videgaray who summed up with him, qualifying them of seller of “illusions”, albeit he recognized that for allegedly being realistic, for not crossing over the most acclaimed grounds, the stabilizing orthodoxy is not the most popular.

In fact Agustín Carstens and the technocrats of the Central Bank know that the fiscal, monetary and economic policies are anti-popular.

It has to be remembered that in August 2014 Carstens won the uproar of the mobs when refusing categorically, same as Peña Nieto, Videgaray and the businessmen, the “populist” proposal of the  capital city government to, in an act of social justice, to rise the nominal minimal salary by 23% in 2015, and by 154% accumulated until 2018; 27% in average annually (from 67 pesos daily to 171 pesos, from 2 thousand pesos to 5,100 pesos monthly), with the aim to recover slightly more than half of the 70% loss in purchase power between 1976 and 2015, thanks to successive crisis in these years, the permanent wage contention associated with the  deflationary policy and the economic neoliberal policy, that has forced the transfer of the existing wealth, parsimoniously created and the entry of the majorities into the state and the capitalists, a typical phenomenon of neoliberalism.

Inevitably the rise in this magnitude of the miserable wages would cost the profit rate. But it would be beneficial to the extended accumulation of capital and its profitability, as it would contribute to revive the weakened effective demand and to take the domestic market from its chronical stagnation. The latter would be strengthened with expansive public expenditure.

But such a measure of this nature cannot be product of a well-meant decree. It would be product of a class struggle and its fight for the distribution of income. And the workers have been subdued politically by the corporatism, the state-entrepreneurial violence and the tyranny of market, the scarcity of formal works and the fear of unemployment, the sub-employment, the informality, that has compelled them to accept low wages, or the cuts of them, under the threat of being dismissed.

The monetary orthodoxy and the “globalization” of the accumulation of capital demand the self-sacrifice of the wages to level them in the poverty and the universal misery, in name of the stability of prices, the productivity, the competitiveness and seduction of foreign investment.

For Carstens and company, that salary rise would be “arbitrary”, “not economic”, with “worse consequences than what they pretend to reach in good faith”. With “undesirable results” for the costs of enterprises that would transfer his rise of the prices of the final goods, would reduce the benefits and increase the informality of labor. They are convinced that the best solution to “improve the retribution of all the factors, particularly of work, is to improve the productivity”.

For the Bank of Mexico and the neoliberals, the judicious thing is to administer and keep the purchase power of real wages at the bottom of the pit.

What is responsible is to subordinate the raise of the minimal wage and other categories to the expected inflation and reached one. It is not even worth to think in raises in several percentage points above the level of prices, with the aim of a recovery in a prudent lapse of time of its purchase power of 1976.

That is despicable populism, according to the orthodox monetarists, the Friedmanists and the new classics.

Marcos Chávez M*, @marcos_contra


 (Translated: Axel Plasa)





Contralínea 460 / del 26 de Octubre al 01 de Noviembre 2015




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