Background on Inflation in Mexico and the Relevance of Banxico
Inflation in Mexico has once again moderated, with the general consumer price index (CPI) showing a monthly variation of 0.36% in October, according to data released by the National Institute of Statistics and Geography (Inegi). This brings the annual inflation rate to 3.57%, breaking a streak of three consecutive months of acceleration.
Who is Banxico and Why is it Relevant?
Banxico, or the Bank of Mexico, is the country’s central bank responsible for managing monetary policy. Its primary goal is to maintain price stability, which in turn supports sustainable economic growth. Banxico sets the target inflation rate and uses various policy tools, including adjusting the benchmark interest rate, to influence inflation expectations.
October Inflation Data and Market Expectations
The October inflation data shows a mixed picture. While the general inflation has moderated, the downward pressure comes entirely from non-core inflation due to fewer supply shocks in the agricultural sector compared to 2024. The core inflation, which excludes more volatile items and offers a stable view of long-term inflation trends, has been above Banxico’s target range for six months despite slower economic growth.
Market expectations, as per a Reuters survey, anticipated an annual inflation rate of 3.56% for October. However, the actual figure came in slightly above this forecast at 3.57%.
Services Sector Continues to Put Pressure on Inflation
According to Inegi’s data, the services sector remains a significant contributor to inflationary pressures. In October, the underlying index (which excludes more volatile items) stood at 4.28% annually, with goods increasing by 4.12% and services rising by 4.44%.
Alejandro Saldaña, chief economist at Ve por Más (Bx+), explained that non-educational and non-housing services have been experiencing more erratic growth recently, with rates significantly higher than their historical average despite a low-growth economic environment.
Non-Core Inflation and Energy Sector
The non-core inflation component rose by 1.18% in October, with agricultural products seeing only a 0.10% increase due to a 10.27% drop in fruit and vegetable prices. The energy sector and government-authorized tariffs contributed to an annual inflation rate of 2.07%.
Key Questions and Answers
- What is the current inflation rate in Mexico? The general consumer price index (CPI) inflation rate for October is 3.57% annually.
- Why is Banxico’s reaction to inflation important? Banxico’s management of monetary policy, including interest rate adjustments, plays a crucial role in maintaining price stability and supporting sustainable economic growth.
- Which sectors are driving inflationary pressures? The services sector, particularly non-educational and non-housing services, is a significant contributor to inflation. The energy sector and government-authorized tariffs also play a role.
- What is the current state of core inflation in Mexico? Core inflation, which excludes more volatile items, has been above Banxico’s target range for six months despite slower economic growth.
