Inflation in Mexico soars to its highest level in more than two years

23/04/2021

Inflation in Mexico rose to 6.05% in the first fortnight of April in annual terms, the highest level since December 2017, the National Institute of Statistics and Geography (Inegi) published Thursday. The increase in prices over the previous fortnight was 0.06%, the largest biweekly rise since 2009. The increase was mainly due to the recovery of oil and gas prices, which bottomed out a year ago due to the pandemic.

Apart from the weight of energy in the increase in inflation, some food prices experienced strong biweekly rises, including Serrano chili, with 25.13%, and tomato, with 18.84%. By type of consumption, transportation was the category that registered the highest increase, with 16.01%, followed by furniture and household goods, with 6.29%. The overall figure exceeded analysts' expectations. A Reuters poll projected inflation of 5.84%.

April's inflation level is well above the Bank of Mexico's targets, whose goal is to keep it at around 3%. The data revealed on Thursday make a short-term return to the policy of interest rate cuts unlikely. 

After a series of reductions in 2020 in response to the coronavirus economic crisis, which placed it at 4%, the banking institution in March cited expectations of an increase in consumer prices and ruled out further reductions at that time.

Banco Base analysts expect interest rates to be maintained at the central bank's next meeting, scheduled for mid-May. "Despite the ample economic slack resulting from the slow economic recovery, the presence of inflationary pressures makes it difficult to adopt a more flexible monetary stance, as it raises the risk of deteriorating the central bank's credibility and distorting inflation expectations, causing a de-anchoring," a report notes.

Despite the heavy blow to the Mexican economy last year, with a drop in GDP of 8.5% compared to the previous year, there are signs of recovery, partly subject to the progress of the vaccination campaign. 

The Mexican Banking Association has been optimistic about a rebound in lending. "We will surely see growth start to pick up particularly from the second half of this year," said the organization's president, Daniel Becker. "There is encouraging data, and this will be directly related to the growth in demand for credit."