Inflation in Mexico hits highest level since 2001

25 Nov 2021

Mexico’s annual inflation hit a 20-year high in the first half of this month, reaching 7.05% compared to 6.24% on average last month.

In addition, core inflation touched its highest level so far in 2021 at 5.53%, a rise from 5.19%, as per the most recent figures by statistics agency Inegi.

“Inflation continues to surprise the market, and with this it’s very possible that [the policy] interest rate will rise again, and I don't rule out an increase of 50 basis points,” according to Gabriela Siller, head of economic analysis at Banco BASE.

“I don’t think we’ve reached the maximum inflation. I think that we are going to close the year with a level of 7.20%. Starting in January it could begin to decrease, but in any case, we think it’ll hold above 6% in the first quarter,” she went on to say.

Moreover, headline inflation rose 0.69% in the first half of November, compared to the previous fortnight, whilst the biweekly core inflation reading of 0.15% was over twice Banorte bank’s 0.07% prediction, reports BNAmericas.

Banorte added that a certain increase was forecast, with several seasonal factors in play: “Among them, energy picked up 3.3% [contribution: 33 basis points], with electricity up 24.2% given the final reversal of summer discounts.” But LPG prices fell 1.9%, while agricultural goods increased 2.2%.

“At the core, other goods [down 0.2%] … benefited from the earlier timing than usual of El Buen Fin (Mexico’s Black Friday), albeit less than expected,” according to Banorte.

Although base effects are set to slow down over the next few months, Capital Economics said that “there are also broader signs of strong price pressures. A sharp increase in food prices pushed up inflation in that category to 9.2% year-on-year, from 7.7% a month earlier. Meanwhile, the re-opening of Mexico’s economy continued to put upward pressure on education and recreation inflation.”

Mexico’s central bank has been hiking the benchmark interest rate to tackle the upward trend, with the fourth 25 basis point rise to 5% made on 12 November.