“Situation in Ukraine complicates the local scenario”

The situation in Ukraine, which has pushed up the prices of some raw materials, as well as oil at the international level, will be complicating the scenario for inflation and its convergence to the objective of the Bank of Mexico (Banxico).

“Inflation will continue to be a central issue in the economic situation, especially given the outbreak of the war in Ukraine. The situation is complicated since this shock occurs in an environment of vulnerability of expectations, which had marked deterioration in the months of the pandemic,” said Daniel Arias, an analyst at Monex.

According to an analysis by CIBanco, it is still difficult to carry out a complete evaluation of the economic and financial impact of the conflict; however, adjustments to economic growth and inflation forecasts are beginning to be recorded.

“Where there does seem to be a general consensus is that the strong rebound currently being seen in the price of global raw materials will have important repercussions on the trajectories of inflation in most countries,” the report said.

He recalled that although it seemed difficult for this year to return to the objective of 3% +/-1 percentage point, now this could take longer and be seen until well into 2023.

“A conclusion of the conflict in the very short term will translate into pressure for the annual inflation rate, especially in the March-May period. In this sense, although the prices of raw materials are soaring and it is possible that they will remain persistently higher in the coming weeks, it is to be expected that as soon as the geopolitical problem ends, much of the increase seen in recent days will recede. in a few months, which means a short-term impact on inflation,” the analysis added.

Given this, some institutions have begun to revise their growth expectations for inflation upwards. For example, Banco Base revised its estimate for this year to 5.5% due to the inflationary pressures that are forming.

“With price information up to February and only two weeks into the war in Ukraine, there is a high degree of uncertainty regarding the level of inflation towards the end of the year. However, the risk of an adverse scenario materializing for inflation has risen. The inflation projection towards the end of the year could be revised towards levels of 8% in case inflationary pressures are observed between March and June, similar to those observed, on average, during January and February”, said Gabriela Siller, director of Economic and Financial Analysis of Banco Base.

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