Chihuahua's State Advantages that offset inflation

The state of Chihuahua, located in northern Mexico, stands out as one of the most important regions in the manufacturing industry. With a population of around 3.8 million inhabitants, Chihuahua has a diversified economy, ranging from mining to energy, as well as significant commercial and service activity. It is interesting to analyze how the geographic and economic characteristics of the region have diminished the inflationary impact that has been present globally. According to INPC figures, inflation as of January 2023 in the State of Chihuahua was 7.0%, compared to the national average of 7.9%; this pattern was observable throughout 2022.

The following is an analysis of why this trend will continue to be observed in the coming months.

First of all, Chihuahua's economy is more diversified than that of other regions in the country, according to data from the CIES "Centro de Información Económica y Social de Chihuahua" at the end of January 2023, we were in 4th place as of the third quarter of 2022 as the largest recipient of Foreign Direct Investment ("FDI") in Mexico. Although 68% of this corresponds to the manufacturing industry, a percentage that places it as the most important, the State also has a solid mining industry, being the third most important entity after Sonora and Zacatecas in production value per entity. As of November 2022, Chihuahua accumulated 44,256 billion pesos in mining production, as well as an important commercial and services activity (3.8% of the State's FDI) and also transportation (10.5% of FDI). This diversification may have contributed to reducing inflationary pressure in the region, as product prices are not so heavily influenced by a single industry or sector.

Chihuahua's geographic position is strategic, as it is located on Mexico's northern border. The oversupply of industrial products produced mainly in this region reduces inflation levels, thanks to the ease of importing and exporting goods and services to the United States, an advantage that provides low freight costs. In addition to the proximity to the border, the levels of insecurity on the highways are very low. This has turned Chihuahua into an attractive destination for the nearshoringThis economic phenomenon consists of taking advantage of the main regional attributes of this area of the country.

Another factor that has had an influence on inflation at the national level in recent years has been the shortage of electricity for industrial purposes in other regions of the country. Chihuahua, unlike these regions, has not suffered the impact of this shortage in the same way, the effect on prices has not been as pronounced and the availability of energy has helped the region to become an ideal destination for foreign investment.

Another characteristic of Chihuahua that may have influenced the lower inflation rate is its relative political and social stability. Although Chihuahua is not exempt from the problems of violence and crime that plague some parts of the country, it has remained relatively stable and secure compared to other regions. This may have fostered a more stable and predictable business environment, which in turn may have contributed to lower inflation in the region.

Another factor that could be contributing to the lower inflation rate in Chihuahua is competition among companies in the region. With a significant manufacturing presence, many companies compete for contracts and to maintain competitive prices, which may have kept prices in check.

In any case, the lower inflation rate in Chihuahua is a positive factor for the economy and the region's manufacturing industry. With more stable and competitive prices, companies have greater incentives to invest in Chihuahua and contribute to the area's economic growth.

While inflation in the country has been a challenge for the Mexican economy in general, the lower rate in Chihuahua may be an attractive factor for companies looking to expand or diversify their presence in Mexico.

In summary, the inflation rate in Chihuahua compared to the 7.9% in the rest of Mexico may have several causes, such as economic diversification, strategic geographic location, political and social stability, economic policies, and business competition. For all these reasons, this data is undoubtedly a positive factor for the economy and industry in Chihuahua since, among other things, it may attract more companies to invest in the region.

• Daniel Agüero / Financial Analyst
• David Holguín / Industrial Real Estate Treasurer
• American Industries Group

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