Puerto Vallarta, Mexico – In May, Mexico’s general inflation saw another increase, albeit less than anticipated, complicating the Bank of Mexico’s (Banxico) efforts to reduce the key interest rate in its upcoming monetary policy decision. The National Consumer Price Index (INPC) stood at 4.69% at an interannual rate, marking three consecutive months of growth, deviating from the official target of 3%, as reported by the National Institute of Statistics and Geography (INEGI).
“This will do little to quell Banxico’s restrictive stance and concerns about persistent price pressures,” commented Jasontuvoy, an economist at Capital Economics. “After stopping the easing cycle in May, it looks increasingly likely that rates will be left unchanged again in June,” he added.
In the previous month, Banxico maintained the key rate at 11%, following a reduction in March, the first since the beginning of its restrictive cycle in mid-2021. The central bank had cautioned in its monetary policy announcement that it would closely monitor the inflationary outlook to determine future adjustments to credit costs.
Since then, the central bank’s governing board has shown division over the necessity of a new rate cut. Last week, Banxico revised its forecasts upward for both general and underlying inflation for the end of this year. The next monetary policy announcement is scheduled for June 27.
Core inflation, considered a more accurate measure of price trajectory as it excludes highly volatile items, decreased for the sixteenth consecutive month to 4.21%, a level not observed since April 2021. In May alone, prices dropped by 0.19% compared to the previous month, while the underlying index registered a rate of 0.17%, according to INEGI.
The products that experienced the most significant price increases in May included tomatoes, eggs, and housing. Conversely, electricity, onions, and LP domestic gas saw the most substantial price decreases.
The ongoing inflationary trends highlight the challenges Banxico faces in balancing economic growth and price stability, making the upcoming monetary policy decision highly anticipated. As the central bank grapples with these dynamics, the economic landscape in Mexico remains under close scrutiny by market observers and policymakers alike.
