Bank of México predicts inflation will drop to near 3% in mid-2023

The Bank of México has predicted that inflation will drop to near 3% by mid-2023.

Central bank Governor Victoria Rodríguez Ceja announced the forecast while appearing before senators on the Finance and Public Credit Committee on Thursday. “It’s expected that general inflation will decline throughout 2022, converging on the 3% target toward the end of the forecast horizon,” she said.

“For annual core inflation, it is anticipated that there will be an increase in the first half of 2022, and then a decrease, converging on levels close to 3% by mid-2023,” she added. Core inflation removes some volatile items from the basket of products used to calculate general price increases.

Rodríguez pointed to inflationary pressures such as the COVID-19 pandemic and the war in Ukraine, but said a population wide consensus was needed to keep prices down.

“The situation presents very complex challenges that have postponed reaching the established inflation target. That’s why we consider it a priority that there is a consensus in our society regarding the importance of the convergence of inflation towards our goal of 3%,” she said.

Rodríguez added that the bank was committed to lowering the rate of inflation. “Although the achievement of the inflation target faces particularly complicated conditions … I want to insist on the unequivocal commitment of the bank’s policy to achieve” the target rate, she said.

Mexico’s inflation rate was 7.62% in the second half of March. The Bank of México has increased the benchmark interest rate by 2.5% through its last seven monetary policy meetings to 6.5% as a means to control price rises. The inflation rate is intimately linked to that in the United States, which rose to 8.5% for the second half of March, its highest since 1981.

Rodríguez also predicted growth rates of 1.9-3% in 2023. The International Monetary Fund (IMF) cut its 2022 economic growth forecast for Mexico from 2.8% to 2% on Tuesday, and some other financial experts recently revised their forecasts downward.

However, some financial experts are more bullish on the Mexican economy due to first-quarter indicators.

The head of economic regional analysis at Banorte, Alejandro Cervantes Llamas, said that bearish sentiments were misplaced.

“Even though there have been a lot of private sector economists that have revised their forecasts downward, the economic situation in Mexico really doesn’t look that bad … [wage growth for formal sector workers] has been greater than inflation in every state of the country … Formal job creation has been strong … Consumption, despite this inflationary spike, continues to be strong,” he said.

Cervantes added that Banorte expected 1.7-1.8% growth in the first quarter of 2022, which would be the highest since the 3.7% surge in the fourth quarter of 2020, when the economy rebounded from the lows of the pandemic.

The president of the Mexican finance executives association (IMEF), Alejandro M. Hernández Bringas, said widespread problems with supply chains from China could benefit Mexico. “Mexico could be the supplier that jumps in to replace these Chinese products and, in this way, get some traction on growth,” he said.

The national statistics agency INEGI said month-on-month growth rates increased for the fourth consecutive month in March.

With reports from Reforma and BN Americas