MEXICO CITY, Aug 27 Reuters Beyond the common challenges like currency fluctuations and supply shocks that keep the world39;s central bankers up at night, in Mexico there is an additional foe for those conjuring monetary policy protection rackets.

Extortion has become a massive problem in Mexico, with powerful drug cartels exerting deep influence over swathes of the country. Keen to establish new revenue streams, these groups have been turning to extorting businesses by forcing them to pay protection money.

One unintended consequence inflation.

Reuters interviewed about 20 small merchants and producers, selling goods such as limes and tortillas, who said they are regularly forced to pay protection money.

Leaders of business associations confirmed the problem and said they estimate extortion adds around 20 to the prices of some items.

The problem is increasingly being noticed by policy wonks and central bank officials even if concrete data on the phenomenon remains scarce.

We have ample anecdotal information which shows that it extortion is not only an important factor but a growing one, which is contributing to the inflationary process we are encountering, deputy central bank governor Jonathan Heath told Reuters in a written response to questions last week.

Like many other countries, Mexico has struggled with high inflation in the wake of the COVID19 pandemic. Annual inflation was running at 5.16 in the first half of August and has been gradually cooling from a…