Monday, November 29

Banxico: Banco de México faces persistent inflation in its monetary policy decision | Economy


Insignia of the Bank of Mexico on one of its buildings in Mexico City.
Insignia of the Bank of Mexico on one of its buildings in Mexico City.Graciela López / Cuartoscuro

Inflation in Mexico is turning out to be stickier than expected. The pandemic created logistical bottlenecks around the world and changed people’s consumption habits, forcing a readjustment in prices. But authorities and analysts expected that, by this time, prices would have stabilized. This Thursday, Banco de México will announce its monetary policy decision and analysts expect a 0.25% increase in the reference interest rate to contain inflation expectations.

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Prices have risen 5.59% in the last 12 months, according to the most recent data from the National Institute of Statistics and Geography (Inegi), well above the target range of between 4% and 2% defined by the central bank . The August figure registered an improvement compared to June, when inflation was 6.08% – the highest since 2017. But it has not dropped as much as expected, explains Joel Virgen, economist and independent consultant at Out of the Box , an analysis firm.

“Everyone at this point almost reached a consensus that these pressures have lasted longer than anticipated and there is uncertainty about how much longer they will last,” says Virgen, former head of analysis at French investment bank BNP Paribas. “This decision on the part of Banxico in particular is transcendental, not necessarily because of the expectation of the rate, but because the discussion can focus on the fact that the pressures have spread more than previously thought and will probably extend more than previously thought” , aim. Banxico will publish the minutes of its meeting on Thursday two weeks later, that is, on October 14.

The reference rate defined by Banco de México is 4.5%, its highest level in almost a year. The central bank board, led by the governor, Alejandro Díaz de León, surprised the markets in June by rising 0.25% and then for the second time in August. This is the bank’s most powerful tool, since a high rate encourages savings, while a low rate stimulates indebtedness and spending, the engine of economic growth. Last year, the Mexican economy suffered the worst decline since the 1930s, and has not recovered the level of gross domestic product (GDP) prior to the pandemic.

The regret of inflation is not unique to Mexico. Around the world, shocks from the pandemic have led to more expensive lives, in part because lockdowns disrupted supply chains for products and raw materials, from fuel and steel to semiconductors to produce electronics. Europe and Latin America are going through an increase in the prices of gas and, therefore, of electricity. The president of Mexico, Andrés Manuel López Obrador, even created a state liquefied gas distributor to offer affordable prices to the most vulnerable populations. In addition, the prices of food, including that of the corn tortilla, the basis of Mexican cuisine, has come to cost up to 27 pesos per kilo.

“As consumers, we gave emphasis to the goods and services of certain sectors,” says Virgen, “health care goods, for example, medicines, products in the supermarket like the pantry, became more important and it was our own demand. and our reaction to the pandemic and the great uncertainty, which is still keeping some prices under pressure ”.

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