Economics: Persistent inflation in Mexico represents challenges for Banxico's monetary policy

MEXICO - Report 28 May 2024 by Mauricio González and Francisco González

Last week two very relevant data items were released in terms of expectations for the reference rate for this year. These were the inflation figures for the first half of May and the minutes of the monetary policy meeting of May 9.

Consumer inflation for the first half of May 2024 amounted to 4.78% annually vs. 4.63% in April. Most of the upward pressure came from non-core inflation, which stood at 6.27%, remaining the main factor in the rebound in general inflation starting in the second half of February.

Nor is core inflation showing a clear downward trend—it remained practically constant at 4.31%. While core inflation had a clear downward trend from the beginning of 2023, it slowed at the beginning of 2024, remaining at levels between 4.3 and 4.5%, which are considered too high to suggest it might converge with the 3.0% target rate anytime soon.

In this context, Banxico's decision to maintain the interest rate at 11% in the last meeting after deciding to lower it by 0.25 basis points last March generates confusion, given that it can be interpreted as a sign of correction regarding the fact that the decrease may have been taken prematurely.

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