High inflation, the main factor slowing growth

The economic outlook in Mexico darkens at the end of the year due to the high levels of inflation, depreciation of the peso, slowdown in consumption and investment, and growing doubts about the autonomy of the Bank of Mexico.

Yesterday he Inegi announced that headline inflation reached a rate of 7.05%, becoming the highest level in 20 years (since April 2001) and exceeding the projections of financial sector specialists.

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The products that registered the greatest increases were electricity and vegetables. The green tomato rose 42.06%, the electricity 24.16% and chiles 19.77%.

BBVA, Banorte and Monex forecast that inflation will close the year at 7.3%, while Grupo Financiero BX + bet that it reaches 7.1%.

But even more worrying, as it stands out Jonathan Heath, Deputy Governor of the Bank of Mexico, in social networks, it is the 5.53% increase in core inflation, the highest since the second half of April 2009.

This measurement, which eliminates raw food and energy products, is more accurate in measuring price developments and their impact on the economy.

It is estimated that the Gross domestic product (START) presents an increase of around 6.0%, which would be offsetting the contraction of 8.5% in 2020.

In such a way, analysts would expect to see the economy really grow as of 2022, however, “high inflation is a limitation for the spending of families, companies and the government, so it is doubtful whether the recovery will take place until 2023 ”, He commented Humberto Calzada, chief economist of Rankia Fly.

Considering an uncertain scenario for the country’s growth, the controversy over the next appointment of the following Governor of the Bank of Mexico it will be essential for the conduct of monetary policy; To curb the rise in prices, and together with a flexible fiscal policy, a greater dynamism of productive activity is stimulated, from which the generation of employment emanates.

Increases volatility in the financial market

In one week, the exchange rate has depreciated 3.76%, pressured by the strengthening of the dollar against the six most liquid currencies in the world and in the last two days by the vulnerability of the autonomy of the Bank of Mexico.

With the aforementioned volatility, the exchange rate returned to the prices of last March when the highest level for this year was registered at 21.50 pesos per dollar.

It is worth mentioning that a more expensive dollar has an inflationary character, because it directly impacts the pocket of consumers. In addition, specialists in the foreign exchange market see a high probability that the exchange rate will reach 22 pesos per dollar before the end of the year.

Not only the peso has been pressured, the interest rate of the Bono M10, of international reference, maintains an upward trend, in one year it has risen from 5.50 to 7.90% and it is possible that it will reach a level of 8% in the following days.

This derived from high inflation, the rise in the exchange rate, a restrictive monetary policy and capital outflows.

Expectation for Banxico

Humberto Calzada said that investors in the financial market have expressed that they are concerned that the President of the Republic considers that the problem of high inflation can be controlled with the approval of the electricity reform.

He also warned that the autonomy of the Bank of Mexico It is worrying after the President wanted to modify Banco de México’s Internal Regulations last year and now he easily proposes and separates officials at the head of the monetary authority.

A couple of days ago it became clear that Arturo Herrera, former Secretary of the Treasury, will not be part of the Banxico Governing Board, and the president yesterday proposed Victoria Rodríguez Ceja, current Undersecretary of Expenditures of the Ministry of Finance, to join the organization.

In the words of the President, he is the one who achieved financial stability and that the country has not borrowed.

However, doubts persist within the financial market because the undersecretary does not have sufficient experience in central banking issues, Calzada said.

President Andrés Manuel Lopez Obredor He commented in this regard that “there is no problem; She has the requirements: that she has financial experience or that she has held a high position in the government related to Finance matters. and if she does, she is a woman of absolute confidence, serious, responsible, and she has our full support ”.

For his part, Rogelio Ramírez de la O, Secretary of the Treasury, said that Victoria Rodríguez is an honest, competent and respected official, and has been proposed by the president to be the first female governor of Banxico.

(With information from Jessica Martínez and Marco Fragoso)


The rise in inflation derives from a post-Covid-19 world crisis, but we are going to stabilize prices, for that we need the Electricity Reform

Humberto Calzada
When an electrical or energy service is controlled by the government it is far from having a price control, I believe that it will not be the case.

Jonathan Heat
Core inflation rose to 5.53% in the first half of November, the highest since April 2009, that is worrying.


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