Mexico Inflation Is Below Forecasts, Giving Banxico Space

Consumer prices quickened 7.62% in February in comparison to a year earlier, down from 7.91% in January

Consumer price increases in Mexico peaked at 8.7% in September, but they had stalled in the three months through January.
By Maya Averbuch
March 09, 2023 | 09:31 AM

Bloomberg — Mexico’s inflation decelerated more than expected in February, suggesting that the central bank may have some room for policy maneuvering at this month’s interest-rate-setting meeting.

Consumer prices quickened 7.62% in February in comparison to a year earlier, down from 7.91% in January, the national statistics institute reported Thursday. The reading was lower than the 7.68% median estimate of economists surveyed by Bloomberg.

Core inflation, which excludes volatile items such as fuel, decelerated to 8.29%, below the 8.45% reading in January and the 8.35% median estimate. The measure, which is closely watched in Mexico, had slowed in December for the first time in two years.


“Inflation is finally coming back down to earth,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, wrote in a note. “Inflation pressures are gradually easing thanks to tighter financing conditions, the MXN rebound, the lagged effect of the stabilization of global commodity prices and falling shipping costs.”

Mexico’s Economy Exceeds Forecast While Facing Headwinds, Inflation

Eggs and chicken remained among the biggest contributors to price pressures amid the ongoing global avian flu. Merchandise costs, which are counted as part of core inflation, slowed to 10.65% in February compared to a year prior, down from 11% in January, and services prices accelerated slightly to 5.55% from 5.51% the month before.

“Inflation of merchandise has been in double digits, but in January and February, it started to decelerate. That has to do with the improvement we’re seeing in international prices,” said Janneth Quiroz Zamora, vice president of economic research at Monex Casa de Bolsa, before the data was released. “What’s worrying is the inflation of services.”

Consumer price increases peaked at 8.7% in September, but they had stalled in the three months through January, putting pressure on the central bank, known as Banxico, to continue its tightening campaign. However, analysts see the February print taking pressure off policymakers.


What Bloomberg Economics Says: The February inflation figures may not be enough to keep the central bank from increasing its policy rate again at its March 30 meeting, but suggest it may slow the pace from the 50-basis-point increase in February. The data give Banxico more independence from Federal Reserve decisions. — Felipe Hernandez, Latin America Economist

Since June 2021, policymakers have raised the key rate at 14 straight meetings for a total of 700 basis points to a record high 11% to combat inflation, with members expressing concern about the trajectory of core inflation. The bank is expected to continue hiking borrowing costs later this month after stunning markets with a bigger-than-expected 50 basis-point rate increase at its last meeting in early February.

The US Federal Reserve a week earlier had delivered a quarter-point boost, leading analysts to forecast that Banxico would match its northern neighbor for the seventh straight decision.

Surprisingly robust economic data in the US prompted Chair Jerome Powell to say this week that the Federal Reserve is prepared to increase the pace of rate hikes and push them higher.


Economists expect inflation in Mexico to finish 2023 at 5.30%, according to a Citibanamex survey published this week, up from a forecast of 5.02% in early January. They see interest rates at 11.5% at year-end, 125 basis points above the survey’s late December forecast, and expect the economy to grow 1.4%, up from 0.9% in early January.

Brazil, Mexico Get Scant Relief From Price Woes

“Twelve-month inflation has now re-taken its downward trend, particularly core inflation,” wrote Gabriel Casillas, chief economist for Latin America at Barclays Plc. “As a result, we continue to expect Banxico to be able to act as they have guided, slowing the pace of hikes at its next meeting on March 30 to 25bp, and move closer to the end of the cycle with a last 25bp rate hike in May.”

--With assistance from Rafael Gayol