Under AMLO, Mexico inflation advances quicker than forecast

Annual inflation in Mexico accelerated faster than expected in February, official data showed on Wednesday, keeping pressure on the central bank to raise interest rates higher even as the economy struggles.

Figures from national statistics office INEGI showed consumer price inflation advanced to 7.28% from 7.07% in January, a rate more than double the Bank of Mexico’s target. A February reading of 7.23% had been forecast in a Reuters poll.

Core inflation, which strips out some volatile items, accelerated by nearly fourth tenths of a percentage point to 6.59%, the highest rate in more than two decades.

The Bank of Mexico (Banxico) targets inflation of 3%, with a one percentage point tolerance range above and below that. In February the bank raised its benchmark interest rate by 50 basis points, a sixth consecutive rise, flagging inflation risks.

Still, Mexico’s economy stagnated in the fourth quarter, and one of the bank’s board members last week noted that higher borrowing costs would not make recovery easier.

Economists have said that the conflict sparked by Russia’s invasion of Ukraine could also fan inflation.

Nikhil Sanghani, an economist at Capital Economics, noted that while Mexico had announced an expansion of fuel subsidies to soften the blow of soaring energy prices, higher costs for food and goods would likely push headline inflation towards 7.5% in coming months.

“Against this backdrop, there is a growing chance that Banxico will increase the pace of tightening at its meeting later this month,” Sanghani said in a research note.

Compared with the previous month, Mexican consumer prices rose 0.83% in February, the INEGI data showed. The core index increased 0.76% over the same period.

The Yucatan Times
Newsroom



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