Heath says Mexico’s core inflation is ‘severe’

Jonathan Heath, member of the board of the central bank of Mexico, activated the alarms regarding the acceleration of the inflation underlying, saying in a series of tweets that the situation is “serious” and may indicate a structural problem.

Although annual inflation at the end of 2021 was slightly lower than in November, and even lower than analysts’ forecasts, it is not good news because underlying prices are rising faster, Heath said. The annual base figure stood at 6% in the last fortnight of December.

Heath indicated in a Twitter post the “persistence of a more inertial and even structural problem.”

Heath’s tighter tone will be watched closely by economists trying to forecast whether the central bank will continue to increase borrowing costs by 50 basis points, or return to quarter-point increases, as one survey suggests. Banxico, as the central bank is known, unexpectedly accelerated the pace of monetary tightening earlier this month and raised rates by half a percentage point to 5.50%.

Inflation slowed to 7.36% in December, from 7.37% the previous month, data released Friday showed, but remained at more than double the bank’s target of 3%.

The deputy governor of Banxico continued to say on Twitter that the prices of services are driving the inflationary process, while one of the components of food inflation, which rose 8.11%, is among the most worrying.

Banxico’s next meeting is scheduled for February and will be the first to be led by Victoria Rodríguez Ceja, who replaced Alejandro Díaz de León in early 2022 as governor. The new leadership has added an element of uncertainty to future rate decisions, as Mexico’s former spending chief has little experience in monetary policy and her nomination by President Andrés Manuel López Obrador raised doubts about the likelihood that she would bow to your wishes.

Díaz de León had said before leaving management that the monetary authority is not committed to more increases of half a point in the future.