Food hikes have a high social cost and affect expectations: Minutes Banxico

The greatest pressures in food prices they have high social costs and can affect the inflation expectations of families, warned a member of the Board of Governors of Banco de México.

According to what is described in the minutes of the meeting of March 24, the impact on the inflation expectations of families “accelerates the inflationary dynamic even if the price of the rest of the merchandise behaves better.”

In the report of that meeting, where the rate was raised by 50 base points for the third consecutive time, another member noted that in Mexico, food products have a greater weight in the basket of prices and services on which inflation is measured compared to what it has in other advanced economies and some emerging ones.

So the increases in food prices globally have generated a negative bias in the country’s inflation.

During the discussion that brought the rate to 6.50%, a level not seen since March 30, 2017, one of the members argued that “virtually all food generics are growing at annual rates above 4% and around the same rate. half are registering variations greater than 10 percent. In fact, the inflation data for March shows that food merchandise registered an annual inflation of 10.08%, which is the highest level since January 2000 and is the first subcomponent of the Underlying inflation which has reached a double-digit level since August 2003, according to the director of economic analysis at Banco Base, Gabriela Siller.

expectations above

According to the majority of Board members, medium-term inflation expectations are on the rise and are approaching the upper range of the target range for Bank of Mexicowhich is 4 percent.

“Another” added that these expectations are both above their historical average and the average observed in other inflationary episodes. “One” more considered worrying that since August of last year the expectations for the next four years have shown a growing trend. “Another” commented that “the risks surrounding the formation process” of long-term expectations should not be underestimated.

And “one” warned that in recent months these (long-term) expectations have already begun to be revised upwards.

“Most pointed out that the expectations extracted by market instruments have also deteriorated.”

They refer to the expectations measured through the compensation for inflation and inflationary risk in ten-year bonds that reached an all-time high.

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