Mexico’s Central Bank (Banxico) warned Thursday, Sept. 28, that the country will suffer higher inflation in the months ahead, raising its forecast for the close the year to 6.2 percent, up from its previous prediction of 5.7 percent.
That new figure will constitute the highest level of Mexican inflation since December 2017, when it reached 6.77 percent, according to figures from the National Institute of Statistics and Geography (Inegi).
“The headline and core inflation forecasts have been revised up from those previously published,” Banxico said in a monthly monetary policy statement.
“Although the shocks that have led to inflation are expected to be transitory, due to the diversity, magnitude and extended horizon in which they have affected it, there may be implicit risks for price formation and inflation expectations.”
To avoid such risks, Banxico said that it was considered strengthening its monetary stance, adjusting it to allow inflation to converge at its target of 3 percent in the forecast horizon.
Banxico also pointed out that the risk for inflation is on the rise, including external inflationary pressures, cost pressures, the persistence of underlying inflationary factors and a depreciation of the peso against the U.S. dollar.
Alberto Ramos, chief economist for Latin America at Goldman Sachs, said that while Banxico continues to consider inflationary shocks to be transitory, given the magnitude, intensity and duration of the current situation, they are very likely to persist.
Notwithstanding, Ramos said that if Banxico can control inflation slightly this month, it may be able to avoid an increase in interest rates in November.
Pamela Díaz, chief economist for Mexico at BNP Paribas, agreed that the new inflation forecasts given by Banxico are alarming.
She said she expects that this year the credit rate will close at 5.25 percent, and that next year there will be three increases, and then a pause in the cycle at 6 percent.
Meanwhile, the members of Banxico’s governing board said that they expected annual inflation to decrease after one year to about 3 percent per annum.
Recent inflation increases in Mexico have been fueled by rising food and energy prices.
As a consequence of Banxico’s announcement of rising inflation and global market uncertainty, the Mexican peso on Friday, Oct. 1, registered a .24 percent fall in value, closing at 20.642 units to the dollar, with six negative days in which it accumulated a 3.3 percent depreciation.