In 2017, Mexico’s annual inflation hit a 16-1/2 year high, adding pressure to the country’s central bank as well as its new governor to act again next month to restrain inflation with another hike.
Inflation was at the rate of 6.77 percent in the year to December, the highest annual rate since the year into May 2001, according to data published by the national statistics agency. Inflation soared following the liberalization of gas prices at the beginning of 2016. Although, over the weekend governor Diaz de Leon said that the rate should start to pump the breaks this month as it disappears from the consumer price index.
The rise in inflation for the second largest economy in Latin America “will probably lead to further calls for Banxico to raise rates again,” at its next policy meeting according to Edward Glossop, Latin America economist. Banco de Mexico is next scheduled to meet regarding monetary policy on February 8.
The minutes from December’s meeting supported a more hawkish tone from the new leader Alejandro Diaz de Leon, with some board members stating that additional rate increases may be required to suppress price pressures.
The volatile peso, the probable weakening of inflation expectations, the danger to the economy regarding the renegotiation of the North American Free Trade Agreement (NAFTA) and this year’s presidential election make a rate hike next month “a significant probability,” according to economist Alberto Ramos.
Ramos has forecast an additional increase of 25 basis points at the bank’s February meeting, trailing December’s one-quarter percentage point increase to 7.25 percent. Ramos anticipates this unless the next inflation reading is positive or if the next round of NAFTA negotiations supports the peso.
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Consumer prices increased by 0.59 percent in December, a six-year high for the month, according to non-seasonally adjusted figures. The core index, which removes some unpredictable food and energy prices, increased 0.42 percent during the month of December. Mexico’s central bank targets inflation of 3 percent. The board recently announced that it anticipates the rate to reach the target slower than previously expected.