Inflation Uncertainty: 45 Months Outside the Target for 2024
The Bank of Mexico (Banxico) has struggled to control inflation throughout 2024, even with interest rates at historic highs. Currently, inflation is nearing 45 months outside the established limit. According to its constitutional mandate, Banxico is responsible for keeping inflation at 3%, with a margin of +/- one percentage point.
In November, inflation stood at 4.55%, the lowest index since March, although it’s expected to close the year above 4%. This situation has remained outside the target since April 2021 and is anticipated to keep going that way until 2026, marking the longest inflationary period in the country’s recent history. Banxico has forecasted that it won’t be until the third quarter of 2026 that inflation adjusts to the desired level of 3%.
Banxico's Strategy to Tackle Inflation The Bank of Mexico, aiming to maintain inflation at 3%, employs monetary policy. In 2023, interest rates were raised to 11.25%, and in March of this year, adjustments began to be observed as inflation appeared to ease.\n Factors That Have Influenced However, the drought during the second quarter of the year caused an uptick in inflation, particularly due to rising prices for food items like fruits and vegetables. Cilantro and chayote were among the most affected, with the price of cilantro reaching as high as 900 pesos for a 5-kilo bunch, compared to the previous 300 pesos. The cost of chayote spiked by 114%. Over time, other products like papaya, tomatoes, and onions also saw price increases.\n Inflation Forecasts for 2025 Both analysts and Banxico expect inflation to remain outside the target range until 2026. For the upcoming year, prices are estimated to average between 3.3% and 3.8%. Banxico indicates that the Mexican economy faces upward risks, especially with the potential return of Donald Trump to the presidency. Among the main risks are the depreciation of the exchange rate, adverse weather conditions, persistent core inflation, and disruptions caused by geopolitical conflicts and trade policies. ______ Want your business to grow? In this episode of Tell Me About the Economy, they offer some recommendations ______ It’s crucial for both consumers and business owners to stay informed about inflation projections and Banxico’s monetary policy decisions. In times of high inflation, it's advisable to review investment and pricing strategies, as well as consider options that protect capital against the erosion of purchasing power.
