Inflation Decreases in Mexico But Not for All Sectors
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Inflation Decreases in Mexico But Not for All Sectors

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Paloma Duran By Paloma Duran | Journalist and Industry Analyst - Fri, 04/14/2023 - 12:27

INEGI reported that Mexico's inflation rate decreased in March, reaching a 6.85% interannual rate. According to experts, the reduction is due to lower prices in the agricultural and energy sectors. However, inflation in the services sector remains significantly high, which is expected to become a problem if not moderated.

 

INEGI stated that the National Consumer Price Index (NCPI) exhibited a variation of 0.27% in March. According to Reuters' predictions, the general consumer price index had a rate of 6.90%, lower than February's rate of 7.62%. However, the rate remains far from Banxico’s target of 3%. 

 

According to INEGI, inflation fell in March, as well, but it remains above the overall index, hovering at 8.09% year-on-year. Against February's inflation, this represents a drop of less than one-tenth of a percentage point. The institute stressed that the largest year-on-year increases were recorded in food and non-alcoholic drinks with 12.9% , goods increased 10.12% and other services increased 7.72%.

 

In the case of Mexico, analysts explained that the services sector has raised its prices after being the most affected sector during the COVID-19 health crisis. Banco Base said that there is still not a full recovery in tourism because, although there is now normal mobility, not all people have enough economic stability to travel.  Likewise, experts explained that the rise in prices in the services sector is also due to the increase in salaries. "Inflation in the services sector always arises internally, in the specific case of Mexico, due to increases in wages, not only in the minimum wage, and also due to greater pressure from the government deficit, which last year was 3.4%, the highest since 2015," commented Gabriela Siller, Director of Economic Analysis, Banco Base.

 

Experts have pointed out that Mexico's inflation performance has been considered good news, as it indicates that inflation has begun to ease in key goods such as food. However, the fact that other services continue to rise is worrisome going forward. "Although policymakers had hinted that last week's hike could be the last in this cycle, we believe that the strength in services inflation will drive a final 25 basis point rate hike in May," Siller added. 

 

Mexico started 2023 with a year-on-year inflation rate of 7.91%, its highest since January 2001. Faced with this problem, Banxico said it would continue adapting Mexico’s monetary policy to ensure relative prices are adjusted. The bank recently raised its benchmark interest rate to a new high of 11.25% and warned that its next decision will be based largely on the impact of inflation in Mexico.

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