The increase in prices continues to weigh on the pocket of Mexicans. Inflation stood at 5.75% per year in the first half of July, as published this Thursday by the National Institute of Statistics and Geography (Inegi). The indicator thus spun four and a half months above Banco de México’s target of 3%, with a possible variation of one percentage point. The cost of energy, mainly domestic LP gas, and certain staple foods pushed prices up. The underlying reason, however, is the Mexican economic recovery and that of the United States, the main trading partner, after overcoming the hardest part of the pandemic.
Inflation increased by 0.37% compared to the previous fortnight, the largest increase for this period since 2012. Within the Price Index, core inflation increased by 4.64% annually, the highest level since December 2017, and a 0.31% compared to the previous fortnight, something not seen since 1999. Food merchandise experienced an increase of 6% and housing, one of 2%. As for non-core inflation, which includes the most volatile elements, it rose 9.2%. Of note is the 14.5% increase in energy, whose value plummeted during the first months of last year due to confinement. “The inflation news released today is definitely bad,” Deputy Governor Jonathan Heath wrote Thursday.
By products, those with the highest increases were air transport, with 56% annually, and domestic gas, with 34%. Precisely, stopping the increase in the cost of fuel has become a priority of President Andrés Manuel López Obrador, who at the beginning of the administration promised to control prices. The government announced two weeks ago the creation of a Pemex subsidiary to distribute domestic gas, a measure with which they hope to reduce market concentration, but which some experts consider futile considering the weight of international markets. The increase in gas is followed by that of foods such as tomatoes, with 25% per year, or butter, with 17.5%.
The rise in prices is not a phenomenon particular to Mexico, but a global one, tied to the economic recovery after leaving the strongest part of the pandemic behind, when demand plummeted. In the United States, the Latin American country’s main trading partner, inflation reached 5.4% in June, the highest level in 13 years. Part of this increase can be transferred to Mexico through higher import prices.
For now, Banco de México considers this to be a transitory effect and expects inflation to return to within the target range for the second half of 2022. However, at its last meeting at the end of June, the Governing Board decided to increase the interest rate 0.25% to 4.25% after inflation reached 6.02% in the first half of June. With this measure, which surprised analysts, the banking institution gave a rudder to the policy of cuts started in 2019 to face the economic slowdown, already present before the pandemic.
The decision did not have the unanimous approval of the members of the Board. Two of its five members voted to maintain the existing interest rate. One of them, Deputy Governor Gerardo Esquivel, crossed out the increase as “precipitous” since, in his opinion, inflation was mainly due to the purposes of comparison base and the increase in supply.
Mexico will grow more than expected in 2021, according to the projections of the Bank of Mexico. In the presentation of the last quarterly report in June, the institution improved its projections for this year to a range of between 5% and 7%. His previous prognosis was between 2.8% and 6.7%.
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Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.