RISING INFLATION TESTS MEXICAN BANK
Policymakers face tricky task as prices reverse course
Mexico’s inflation accelerated for the first time in months in late September, putting pressure on policymakers to keep defying the regional trend of easing interest rates as they face a tricky path ahead.
Consumer prices rose 4.47 percent in the last two weeks of the month compared with the prior year, up from 4.44 percent in early September, the national statistics institute reported Monday. The result was slightly below the 4.5 percent median estimate of economists surveyed by Bloomberg. Biweekly inflation hadn’t accelerated since the end of April and was last stagnant in late July.
Although headline inflation eased overall in September to 4.45 percent from 4.64 percent in August, the slowdown took place early in the month and reversed slightly in the last two weeks. School costs often contribute to inflation pressures at this time of year as students return from vacation, while fuel prices were also high at the end of last month.
Mexico’s central bank, known as Banxico, could have a tricky few months ahead, as economists polled by Citibanamex last week see inflation ending the year at 4.7 percent, above its current reading. Winter fuel tariffs are likely to pressure prices in the coming
months, as would the peso if it continues weakening as seen in recent weeks, said Gabriela Siller, director of economic analysis at Grupo Financiero Base.
“Everyone is expecting Banco de México not to hike interest rates again, but I think there’s a possibility of one more hike before the end of the year, which would give a final downward tug to inflation,” Siller said, noting that the government’s plan for a large budget deficit in 2024 will likely nudge prices upward next year.
Core inflation, which excludes volatile items such as fuel and food, was 5.74 percent, compared with the 5.78 percent seen a year earlier.
Services inflation led the monthly print, at 5.23 percent.
“The fresh rise in services inflation will reinforce Banxico’s concerns about the persistence
of inflation,” Capital Economics wrote in a note. “This only reinforces our view that an easing cycle will not begin until early next year and that rates will come down slower than the consensus anticipates.”
Mexico’s central bank held rates at a record high of 11.25 percent for its fourth straight meeting last month and increased its inflation forecasts, leading economists to think there will be no cuts on the immediate horizon.
The board repeated a reference to the need to maintain borrowing costs at their “current level for an extended period” in its statement accompanying the decision.
Banxico targets inflation at 3 percent, plus or minus 1 percentage point.