Mexico’s Inflation Lightens After Banxico Lifts Its Interest Rate to a Record High

Inflation slowed down more than expected in early October, suggesting price gains are close to a peak

The Mexican government recently announced it would halt bean and white corn exports and ease sanitary measures on key foods in an effort to stem inflation.
By Max de Haldevang
October 24, 2022 | 08:54 AM

Bloomberg — A key Mexican inflation metric accelerated beyond expectations in early October, keeping pressure on the central bank even as headline cost increases may have peaked.

Core inflation, which excludes volatile items like fuel, sped up 8.39% in early October from a year prior, the national statistics institute reported Monday. The result was above the 8.29% reading in late September and out-paced the median estimate of 8.32% reported by analysts in a Bloomberg survey.

“Core inflation reflects how entrenched inflation is,” said Pamela Diaz Loubet, a Mexico economist at BNP Paribas. “While non-core price pressures and shocks begin to fade, core inflation shows how those shocks have already created second-order effects.”

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Overall, prices rose 8.53% in the same period, below 8.64% the previous two weeks and under the 8.62% median estimate. On a biweekly basis, prices gained 0.44%, compared to a 0.53% forecast.

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“It seems inflation might have peaked in the second week of August,” since the headline figure has now fallen in three straight bi-weekly inflation prints, said Janneth Quiroz Zamora, vice president of economic research at Monex Casa de Bolsa.

Mexico’s central bank, known as Banxico, targets inflation of 3%, plus or minus 1 percentage point.

Banxico raised rates last month to 9.25%, the highest since it started targeting inflation in 2008. The 75 basis-point boost continued its run of matching the US Federal Reserve’s increases. The board appeared divided in meeting minutes published in October, with one member calling for a smaller hike in November, while another said a bigger increase may be needed.

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The price inertia means “we will see the need to maintain a restrictive monetary policy stance for the coming months,” Deputy Governor Irene Espinosa, seen as one of the board’s more hawkish members, said on a panel earlier this month.

Carlos Capistran, Bank of America’s Mexico and Canada economist, predicted that Banxico would keep matching the Fed’s hikes up to 11%, with a 75 basis-point hike coming in November.

The government recently announced it would halt bean and white corn exports and ease sanitary measures on key foods in an effort to stem inflation.

Yet despite the efforts of the government and the central bank’s tightening cycle, inflation is still far from returning to target in Latin America’s second-largest economy. Analysts have continuously revised up their estimates this year.

Banxico also boosted its inflation forecast upwards last month, projecting it will be at 8.6% in the last quarter of 2022 and slow to near its target at 3.1% only by the third quarter of 2024.

Economists surveyed by Citibanamex see inflation slowing only to 5.11% at the end of next year and expect the bank to again hike by 75 basis points in November, with the rate ending the year at 10.5%, according to a poll published this week.

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--With assistance from Rafael Gayol and Giovanna Serafim

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