Analysts Expect Inflation in Mexico to Stay Within Central Bank Limits
It is anticipated that the general inflation in Mexico has decreased during the first half of January to its lowest level in four years, within the target range set by the central bank, according to a poll conducted by Reuters. This supports the notion that the central bank may continue to lower the key interest rate. The median of projections from 13 experts suggests that the annual rate will settle at 3.78% for the National Consumer Price Index (INPC), marking the fifth consecutive decline. In 2022, inflation hit a historic high of 8.77%, the highest in over 20 years.
On the other hand, core inflation, a more reliable indicator of price trends as it excludes products that tend to be volatile, is estimated to have fallen to 3.68%, following a spike in the previous two halves of the month. The Bank of Mexico (Banxico), which aims for an inflation rate of 3%, plus or minus one percentage point, reduced its funding rate by 25 basis points in mid-December 2023, marking the fifth cut of the year, bringing it down to 10%. Additionally, it indicated that it would continue to lower the cost of credit this year and may consider even more significant cuts. In an interview with Reuters, Deputy Governor Jonathan Heath mentioned that the central bank's board could evaluate a reduction of up to 50 basis points in its first scheduled decision on February 6. However, the official acknowledged that the current outlook is very different from what was initially expected due to actions that could be taken by U.S. President Donald Trump once he takes office. Despite this, a survey conducted by Citi this week suggests that while a 25 basis point cut is anticipated for February, many in the market foresee a half-point reduction. In the first half of January, consumer prices are estimated to have increased by 0.29%, while the median projection for the core index was 0.23%. The National Institute of Statistics and Geography (Inegi) will reveal the behavior of the consumer price index during the first 15 days of January on Thursday.
Keeping inflation within the target range is crucial for the country’s economic stability. However, political uncertainty, both domestically and internationally, can influence the decisions of the Bank of Mexico. A controlled inflation environment and lower interest rates could facilitate access to credit and boost consumption, but it is vital that policies align with sustained and healthy economic growth.
