Inflation: Roadblock for 2022
In 2021, inflation in the mining sector reached its highest point in six years fueled by higher oil prices. Rising inflation set off an increase in various mining, logistics and commodities’ costs, leading projects to be put on hold until the market outlook improves. Experts say inflation will remain a major challenge in 2022, as the pandemic wreaks havoc.
According to data from the National Producer Price Index (INPP), inflation in the mining sector reached 35.17 percent in 2021, the highest increase since 2016 when prices rose 53.3 percent. A representative of the Mexican mining chamber CAMIMEX explained that the rising inflation last year was mainly due to the upward trend in oil prices. Without it, inflation would have remained at 16.69 percent. "Inflation is comparatively lower than the total for the sector, but still above the national average of 10.26 percent. This reflects the inflationary pressures to which mining was exposed during the year," said the representative to El Economista.
High oil prices did not only fuel inflation in mining operations, but also in logistics and commodities’ costs, which put additional pressure on miners and even forced some to halt their projects. CAMIMEX said that of the 1,190 foreign mining projects planned at the moment, 754 were postponed until cost conditions to improve. This is not expected in the short term as the COVID-19 pandemic will continue to generate uncertainty in the market. "The effects of the pandemic continue and until they are controlled, inflation is likely to maintain its upward trend as in 2021," the representative said.
Alejandro Saldaña, Deputy Director of Economic Analysis, BX+, explained that the inflationary situation is not only bad for producers but also for consumers, since price increases could reach them as well. This could push general inflation to exceed 2021’s yearly increase of 7 percent. “Although inflation may slow down in 2022, it will remain high and beyond tolerance margins for many companies, which is why we anticipate further interest rate increases for all,” Saldaña said in a BX+ report.
CAMIMEX explained that the Mexican mining sector’s performance worsened in 2021 as it only managed to capture US$4.24 billion in investment, 15.6 percent below expectations. Nevertheless, the chamber’s mission remains to strengthen the industry and to make it less vulnerable to inflation, thus boosting the country's economic recovery.