The Governing Board of Banco de México reported that it expects inflation of 6.8% per year for the end of this year, a variation that, if confirmed, would be the highest in 20 years.
This forecast incorporates a new increase over their September forecast, when they expected a 6.2 percent fluctuation.
In the inflation outlook that accompanied its seventh monetary announcement of the year, the central bank admitted that the trajectory of general prices has been affected by global and internal pressures.
According to his analysis, the shocks that have affected inflation “are mainly transitory.”
They refer specifically to bottlenecks in production, due to the stimulus to spending and its recomposition towards merchandise, as well as the increase in food and energy prices.
However, they explained that “the horizon in which inflation could affect is uncertain, and it has impacted a wide range of products and its magnitude has been considerable.”
In the statement, where they announced the fourth straight increase in the rate, which stood at 5%, they stated that these pressures made it “necessary to continue strengthening the monetary stance.”
As a result of these projections, they also changed their forecast for core inflation, which is the one that includes the prices of goods and services that tend to be less volatile due to seasonality and are less exposed to administrative decisions. The one that saves 70% of daily household consumption, as Deputy Governor Jonathan Heath recently described.
Now, the members of the Governing Board anticipated that core inflation will end the year at 5.5%, a rate that contrasts with the 5.3% they forecast in September.
Expectations away
In the monetary announcement, they indicated that “the expectations of general and core inflation for 2021, the next 12 months and 2022 increased again”.
They stressed that the long-term ones have remained stable, but at levels above the goal.
Economists at BNP Paribas and Pantheon Macroeconomics confirmed that their expectations are far from those of the central bank. They agree to estimate that inflation will average 7% at the end of the year, more than double the specific objective of 3 percent.
BNP Paribas economist for Mexico, Pamela Díaz Loubet, added that for next year they expect a variation of 4.5 percent.
The senior economist at Pantheon Macroeconomics, Andrés Abadía, also estimated that it will reach 7% by the end of the year and qualified his forecast for 2022 to leave it at 4 percent.
They agree that these forecasts assume that the economic recovery will remain weak and therefore demand, and that supply chains that have put pressure on component prices will be reestablished.
But there is also latent the risk of pressure on merchandise prices from greater volatility in the exchange rate associated with the withdrawal of asset purchases by the Fed and that the rate hike in the United States advances.
Díaz Loubet acknowledged that an increase in rates will not limit inflation because, as the Governing Board stressed, the main origin of these pressures is external and, on the other hand, there could be some impact of the normalization of rates on economic activity.
Eduardo Suárez Mogollón, vice president of economic analysis for Latin America at Scotiabank, highlighted that the trend of the National Producer Price Index (INPP) has shown contamination for months due to the rise in energy prices. It is a leading indicator of inflation, he said.
Reference-www.eleconomista.com.mx