Boom in Mexico

February 17, 1947

MEXICO CITY—Mexico is in the midst of a Florida boom. Real-estate values are fabulous. Prices are high even for Americans. There is a tremendous volume of building. Whether in the middle of the city or in the outlying country, one sees feverish new construction everywhere—new homes, new office buildings, new luxury hotels, new factories. And the new buildings are aggressively and often handsomely “modern.” The Mexican architects are bolder than all but a small handful of our own in handling modernism.

The statistics amply confirm first impressions. Wholesale prices had risen by 1946 about 130 percent above the level of 1939. In the same period the cost of living has risen on various indexes from 170 to 200 percent. Foodstuffs alone have gone up 210 percent. Weekly wages and salaries have not begun to keep pace with this. As compared with 1939 they had risen on the average only 107 percent by 1946.

Among the workers those in the petroleum industry (operated by a government corporation) have done best. In 1946 their average weekly wage was 107 pesos, compared with 81 pesos for the railway workers, 70 for the miners, 58 in the textile industry, and an average of 55 pesos in some 34 other industries. (The peso equals about 20 cents U.S.)

Explanations of the rise in prices and the cost of living are as diverse in Mexico as they are for the smaller rise in prices in our own country. Some Mexicans blame it on the expenditures of American tourists. But though tourist expenditures are estimated in Mexico to have risen on net balance from $4,000,000 a year in 1938 to $88,000, 000 in 1946, they would not begin to be sufficient to account for what has taken place.

The best-informed thought in Mexico ascribes the inflation to the increase in the volume of money and bank credit. Money in circulation rose from 517,000,000 pesos at the end of 1938 to 1,720,000,000 at the end of 1946. Checking accounts in the same period rose from 224,000,000 pesos to 1,787,000,000. This is a rise of 373 percent in the volume of money and credit from the end of 1938 alone.

There has been no corresponding increase in physical production. Industrial output has been spotty, with spectacular rises in some lines and sharp declines in others. But the general index of industrial production was up in 1946 only 32 percent above the 1939 level. This great increase in the volume of money and small increase in overall production are enough to account for the rise of prices and living costs without looking further.

But the building boom is very real. In the Federal District more than three times as many buildings were completed in 1945 as in 1939. In terms of peso costs the comparison is even more striking. Total construction in monetary values was four to five times as great in 1946 as in 1939, construction of office buildings alone ten times as great, of factories more than eight times as great.

Part of the explanation of this is that building wages and material costs have not gone up as fast as the volume of money in circulation. The index of building-material costs was up in 1946 only 128 percent above the level of 1939. (Mexico, however, had price fixing until the Aleman regime came in December. Official indexes, I am told, do not fully reflect the higher black-market prices really paid.)

In spite of the fact that Mexican price levels have risen much faster than our own, the exchange rate has been kept stabilized at 4.85 pesos to the dollar since 1941. This is even an improvement over the rate of 5.18 in 1939. This stability has been maintained by a stabilization fund and by agreement with the United States Treasury. But the stability of the peso is obviously threatened by basic factors. Mexico’s high prices are out of line with American prices. This threatens the continuance of the growing American tourist trade. It threatens Mexican exports. It unduly encourages imports.

In 1946 Mexico imported 2,637,000,000 pesos worth of goods—five times as much as in 1938. Yet Mexican exports in 1946 were valued at only 1,384,000,000 pesos (plus about 450,000,000 pesos in gold and silver). It is estimated by some authorities here that a “purchasing-power parity” would today be six or seven pesos to the dollar rather than the present 4.85.