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Mexican inflation slows after central bank decision

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Mexico’s annual inflation has slowed to its slowest pace since March as the government implemented price controls on liquefied petroleum gas used in homes and businesses.

Consumer prices rose 5.58% in the first half of August from the previous year, down from 5.86% at the end of July, the national statistics institute reported. last week. The result was also lower than the median estimate of 5.66% of analysts polled by Bloomberg. Prices fell 0.02% compared to the second half of July.

Mexico’s central bank, known as Banxico, raised its policy rate for a second consecutive meeting earlier this month, to 4.5%. Economists say the Energy Regulatory Commission price limits, put in place at the behest of President Andres Manuel Lopez Obrador, will likely be temporary. At the same time, the caps have acted as a counterweight to pressures such as rising food prices.

“The effect of LPG is unique,” ​​said Enrique Covarrubias, chief economist at Actinver. “If it hadn’t been for that, inflation would have been higher than it had been historically, not too far from 6%.”

Fruits and vegetables jumped 2.33% from the end of July, serrano peppers 26.78% and avocados 8.98%. Domestic gas fell 15.06% during the period, according to the statistics institute.

Core inflation remained under pressure, accelerating to 0.28% from 0.13% two weeks earlier. The base rate also hit its highest year-on-year level since late 2017.

“While this was in part due to a further increase in inflation for food items included in the baseline measure, inflation for basic non-food items also increased,” wrote William Jackson, chief market economist. Emerging Markets at Capital Economics, in a report. .

Some analysts have predicted that the central bank will go through a tightening cycle for the rest of the year in an effort to control inflation, although the five-member board has been split on politics in its last two meetings. .

The economy rebounded strongly in 2021, posting a 19.7% jump in gross domestic product in the second quarter from a year earlier and a quarterly increase of 1.5%.

Annual inflation peaked at 6.1% in April, before falling in the following months. It has consistently stayed well above the central bank’s 3% target, plus or minus a percentage point.

“Mid-term core inflation is where monetary policy is at its peak,” Covarrubias said. “We should expect at least three 25 basis point hikes in their next four meetings.”

Going forward, central bank governor Alejandro Diaz de Leon will step down at the end of his term in December, and Lopez Obrador has appointed former finance minister Arturo Herrera to replace him.

The change of constituents could alter the decisions of the board, which has maintained a 3-2 split in the last two meetings, with members Galia Borja and Gerardo Esquivel opposed to the tightening. The central bank will then meet on September 30, then in November and December.


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