Mexico’s inflation outlook: challenging with upside risks, says Banxico

The Bank of Mexico (Banxico) warned today that Mexico’s inflationary outlook appears challenging and uncertain, with potential for increased risks, primarily due to the robustness of the internal economy.

From the most recent monetary policy meeting’s minutes, most of Banxico’s five-member Governing Board noted the ongoing progress in local disinflation, attributed to the easing impacts of the pandemic and conflicts in Eastern Europe.

However, it was universally recognized that despite inflation generally receding across many economies, it remains at heightened levels.

The report stated, “Inflation remains above central banks’ targets in many economies. The global decrease in general inflation has been linked to reduced price pressures on energy and food.”

As of mid-August, Mexico’s inflation stood at 4.67% year-on-year, still surpassing the official target of 3.0%, based on the latest data from the National Institute of Statistics and Geography.

For Mexico, some board members perceived heightened inflation risks from potential cost pressures, mainly driven by the labor market’s strength and internal demand.

All members emphasized that Mexico’s economic activity has demonstrated resilience, with growth bolstered by consumption, investment, and civil engineering projects.

Banxico highlighted potential economic risks, including a significant “slowdown” of the US economy, especially by 2024.

Mexico’s economy, Latin America’s second-largest after Brazil, expanded by 3.0% in 2022.

Private analysts surveyed by Banxico project Mexico’s economy to grow by 2.50% in 2023 and 1.50% in 2024, partly due to an anticipated slowdown in the US.

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