If Inflation, Why Not Christmas From Mexico?

If demand is there, then so is opportunity. Nobody seems to be taking advantage, perhaps there isn’t the opportunity in the first place because demand isn’t what everyone says. Or if it really is, then maybe not likely to stay that way for long enough.

Out of the many major trade partners with the United States, you’d think that our Southern neighbors in Mexico would be lapping up the overflowing economic rebound ostensibly going on just on the other side of their border. No sir.

As usual, however, the statistics at first do make it seem as if Mexico has finally caught the inflationary virus we’re told rages here. According to that country’s Instituto Nacional de Estadística y Geografía (INEGI) earlier today, real GDP increased by 19.6% year-over-year in the second quarter of 2021, Mexican GDP’s first plus sign in nearly two years.

Not just the first positive comparison in a long while, also the highest on record.

Having been through this same statistical trick with China, you know what’s coming and therefore what’s really going on here. While GDP may have been almost 20% better than 2020’s second quarter, the COVID quarter, it was also 3.5% less than 2019’s Q2.

In fact, total estimated inflation-adjusted output in Mexico was still 3.7% below the prior “cycle” peak set way, way back in Q3 2018.

If someone were ever to tell you about an economy whose real GDP was nearly 4% less after three years, the last thing you’d associate it with is inflation, recovery, or any qualifier remotely approaching decent.

And that’s because it’s the time value, and time is indescribably valuable, more than the -3.7%.

To our current debate, the key reason why Mexico keeps lagging in this way is its industrial sector output has traced the very same pattern, if to an even greater deflationary degree:

Estimates provided by Mexico’s same government agency show that Industrial Production there is an enormous, Great “Recession”-sized funk of 7.3% behind its prior peak also set three years back from here. Twenty-twenty’s COVID was an unwelcome and serious addition to a recession already quite extensive and prolonged.

Mexico – and this goes for far too many places around the world – has yet to pull out from the one let alone both. Supply issues hardly explain much weakness in 2021, and Mexico, like those other places around the world, has been enduring contraction and decline for years on end.

Of that more recent trouble, here’s where Mexican data gets more interesting in its most serious way. IP, especially, seems to have taken that economy’s rebound a step-down beginning last November. There has been a more recent outright decline since March (again with March and April), but this industrial slump dates back to around the end of last year.

Where else have we observed this same thing, these very same months?

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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