Mexico prices rise at a ‘phenomenal’ rate: central banker

Consumer prices for Mexico They are rising at a phenomenal rate and may not peak until late 2021 or early 2022, requiring an appropriate response from monetary policy makers, said Jonathan Heath, deputy governor of the central bank.

Both internal and external supply shocks have led to an upward trend in inflation, leaving no room for an expansionary monetary policy, said Heath, one of the five members of the Governing Board of Bank of Mexico, in a Grupo Financiero Banorte podcast published on Wednesday.

“It is very easy to see that prices are increasing, they are transferring prices to consumers at a really phenomenal rate,” he said.

The central bank has raised its key interest rate by a quarter of a point in each of its last three meetings, raising expectations that borrowing costs will hit 5.25% by year-end from 4.75% today, according to economists. surveyed by Citibanamex, a local unit of Citigroup Inc. Banxico is one of many central banks in Latin America that are tightening their monetary policy in response to accelerating inflation as economies reopen.

While many of the supply shocks are external, internal factors such as floods, climate change and road blockages have also contributed to price swings, Heath said. The central bank’s concern that increases in one sector of the economy will push prices up elsewhere through spillover effects has already been noted, he added.

“If we look at core inflation, I think we can conclude that they are already widespread increases,” Heath said.

In the podcast, Heath projected that Mexico’s economy would not return to pre-pandemic highs until the end of 2022.

In September, Mexico’s annual inflation accelerated to 6%, double its target, while annual core inflation, which excludes volatile items such as fuel, reached 4.92%. Banxico’s inflation target is 3%, plus or minus 1 percentage point. The overall reading has hovered above 3% since June 2020, while the last time core prices were at their target was in 2016.

“If inflation lasts at levels above four for more than two years, it is not so temporary anymore, there is already an inflationary inertia that really worries and that we have to make sure that we are giving the correct answer,” said Heath.

The bank has been divided in its last three meetings. Heath and three other members voted in favor of the most recent rate increase, which brought the rate to 4.75%. Deputy Governor Gerardo Esquivel voted against the decision. The Governing Board will meet to decide on rates two more times before the end of the year.