Inflation climbs to 4.67% in Mexico, worst in more than two years

RIO DE JANEIRO, BRAZIL – Prices in Mexico continue to rise. In March, inflation reached its highest level in more than two years, reaching 4.67%, according to data from the National Institute of Statistics and Geography (Inegi) published on Thursday.

The rise is largely due to the continued increase in the price of oil in international markets and the price of food within the country. Experts expect inflation to continue rising, and the Bank of Mexico, in charge of maintaining price stability, walks a fine line between contributing to economic recovery and containing inflation.

The National Consumer Price Index registered inflation of 0.83% in March from the previous month, putting annual inflation at 4.67% – its highest level since December 2018 and well above the so-called target range imposed by the central bank of between 2% and 4%. Prices of agricultural products, such as food, rose by 1.27% in the month, and those of energy products, whose tariffs are authorized by the government, such as gasoline and LP gas, increased by almost 2%.

“Food, beverages and tobacco and other services continued to exhibit significant increases,” Finamex economic analysts said in a report. “This was mainly due to focused increases, such as the price of tortillas, in the first case, and seasonal effects in tourism-related services in the second,” they added. Finamex expects annual inflation in April to be 5.5%.

On March 25th, at its meeting to decide monetary policy, the Board of Banco de México recognized the risk that inflation would continue to rise, and therefore decided not to cut the reference interest rate and to maintain it at 4%.

The interest rate is one of the most important tools for the central bank. By keeping it low, banks are encouraged to lend funds to support economic activity. Keeping it high prevents the economy from “heating”, i.e., accelerating economic activity to such an extent that inflation would skyrocket.

The decision was made “considering the inflation forecasts described, the risks to which they are subject, as well as the desirability of consolidating a declining trajectory for inflation,” according to meeting minutes released by the bank on Thursday. “In the future, the conduct of monetary policy will depend on the evolution of the factors affecting inflation, on their expected paths over the forecast horizon and on their expectations.”

“Starting this fortnight and until the second half of May, annual data will be affected by a low comparison base for energy prices,” Finamex economists wrote. This will lead to a significant rise in inflation; they assured, “during this period, we will be attentive to the evolution of non-food merchandise prices and other services since, from our point of view, they are the ones that could exert greater additional pressures to the underlying component. Even if this is not the case, we do not expect headline inflation to be below 4% before July”.

Source: El Pais