Banxico Board Member Warns Price Controls Only Work Short Term

(Bloomberg) -- Mexico's government should be very careful if using price controls, which usually can't curb inflation for long periods of time, according to deputy central bank governor Jonathan Heath.

Bloomberg News reported last week that President Andres Manuel Lopez Obrador was seeking a pact with major businesses to rein in prices that are rising at the fastest pace in two decades. Heath welcomes “out-of-the-box” thinking and it is in the government's right to use such controls, he wrote on Twitter on Tuesday.

“My personal opinion is that price controls only work in the short term, which means a lot of care has to be taken in their instrumentation,” Heath wrote. “However I don't mind ‘out-of-the-box' thinking in the search for policies that could help us counteract inflation.”

Lopez Obrador, widely known as AMLO, confirmed last week that his government is talking to major businesses to seek a deal on prices for 24 items in the basic basket of Mexican goods.

Mexico's inflation accelerated to 7.72% in early April, driven by food, gasoline and vacation costs. It has led the central bank to boost interest rates and is becoming a headache for the Mexican government given its impact on consumers. 

Read More: Mexico Seeking Price Pact With Top Firms to Tame Inflation

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