Economics: Inflation is stubbornly high in Mexico even as it continues to cool in the US, and Banxico board members send mixed signals

MEXICO - Report 22 Jul 2024 by Mauricio González and Francisco González

Inflation in Mexico is resisting any firm deceleration. It has rebounded yet again, climbing to 4.98% yoy in June in response to the combination of a strong increase in the non-core rate (+148 bps vs. May) and only minimal reductions in core inflation (-8 bps) mainly in response to the services component, which has proven to be insensitive to the monetary policy rate.

In contrast, US inflation in June decreased to 3.0% yoy, a notch below the 3.1% expected by markets and a greater easing than in the previous two months. The trajectory of inflation in June indicates that monetary policy is having an effect in controlling price growth, although the process has been slow. If inflation's easing continues, the Fed could restart the cycle of interest rate cuts when it meets on September 18.

In this context, the message regarding the inflation problem that Banco de México sent via the latest minutes from its Board of Governors is unclear. Its diagnosis seems to be correct even as several of that body’s members have made statements that suggest the prospect of a resumption of the easing cycle in a context in which there is, as yet, no clear evidence that inflation is on its way to effectively being brought under control.

In this week’s Outlook we analyze the recent trajectory of inflation in Mexico and the US and its implications for monetary policy.

Now read on...

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