Outlook risk: A member of the the Mexican National Guard stands on a street as he distributes flyers during a recruitment campaign in Mexico City. The central bank’s minutes point to slow economic growth that should help ease pressure on prices. — AFP
NEW MEXICO: Mexico’s annual inflation accelerated more than expected last month, an announcement coming a week before policymakers are expected to deliver their last interest rate cut of the year.
Consumer prices rose 3.8% in November compared to the same month last year, according to the national statistics institute.
The reading came in above the 3.7% median estimated by analysts surveyed by Bloomberg and up from October’s 3.57% print.
Core inflation, which excludes volatile food and fuel prices, stood at 4.43% compared to 4.28% in October. Mexico’s central bank targets inflation at 3%, plus or minus one percentage point.
Banxico, as the central bank is known, is widely expected to deliver a 25-basis-point cut on Dec 18, ending the year with a 7% reference rate.
In its latest monetary policy minutes, the central bank hinted at next week’s cut while suggesting a pause at their meeting in February.
The minutes also pointed out that slow economic growth should help ease pressure on prices. The central bank recently halved its 2025 gross domestic product forecast to just 0.3%.
Marco Oviedo, a senior strategist at XP Investimentos, wrote in a note to clients that November’s inflation print “is not great news for Banxico”, although it gave the board more arguments to change the guidance in the next meeting for a pause in the first quarter.
“We believe that given that they have signalled the intention to cut, it will be difficult not to do it this time,” said Oviedo. “But it will signal the intention to make a long pause.”
Felipe Hernandez, a Latin America economist, said outsize Mexican inflation in November isn’t a major concern on its own, adding however, that persistently high core price gains pose a meaningful risk to the outlook.
“With inflation running above the central bank’s projections, policymakers are likely to revise up their short-term forecasts at next week’s meeting, though still expect the headline and core to slow to around 3% by the end of next year.
“We expect most policymakers to place more weight on the inflation outlook than on recent data, and opt for a 25-basis-point cut on Dec 18.”
Some members of the bank’s five-person board expect headline inflation will converge to target by the third quarter of next year. Still, the core rate has persistently hovered above the target range.
Banxico deputy governor Jonathan Heath recently said the institution has a credibility crisis due to its inability to tame inflation, the bank’s sole mandate.
“Our risk assessment for inflation over the planning horizon remains skewed to the upside,” said fellow board member Galia Borja in a podcast for Banorte.
“From my point of view, the utmost caution is warranted in the conduct of monetary policy.”
Approved tax increases set to go into effect in January, along with uncertainty over US trade ties, complicate the bank’s push to tame inflation.
Electricity, public transportation, tomatoes, plus meals at diners and taco restaurants stood out among the products with the largest increases in their prices.
In contrast, table wine, avocados, potatoes and rum decreased in price, the data showed.
“The catalysts behind today’s figure were the expiration of electricity tariff discounts in select cities affecting energy and government tariffs, and the effects of ‘El Buen Fin’, akin to Black Friday in the United States, reflected in core goods component where after some discounts in the first half of the month, these rebounded in the second half,” said Gabriel Casillas, head of Latin America economics at Barclays Plc. — Bloomberg
