Inflation’s Non-Underlying Component Shrinks in December: Banxico

Mexico’s economy saw a small recovery during the last quarter of 2022, according to the country’s Central Bank (Banxico). While the country’s underlying inflation increased, the non-underlying component of inflation decreased despite numerous expert forecasts. The country’s economy faces a complex challenge in 2023, which is mainly attributed to the external global environment.

Banxico’s Board of Governors attributed the impactful growth of the world economy in 3Q22 to a crucial rebound of the US economy and a long-awaited opening of economic activities in China. However, Banxico also explained that numerous global indicators show contractions regarding the performance of the global economy in 3Q22. The institution’s economists highlighted that some economies in the EU have contracted. Growth prospects for 2023 remained poor for the global economy, with strict financial conditions and geopolitical conflicts surging as the major causes for most revisions, reported Banxico via a press release. 

The global economy will continue to face major risks in 2023, including those associated with the pandemic, inflationary pressures, worsening geopolitical tensions and tighter monetary and financial conditions, according to Banxico. The Board of Governors agreed unanimously that headline inflation has decreased in numerous economies, mainly due to a decrease in food and energy prices. The governors also highlighted that many countries have exceeded their inflationary peaks and that inflation in the US began to decline. 

In Mexico, the service sector proved fundamental for the country’s recovery, said Banxico. The institution also highlighted that Mexico’s primary sector showed a crucial recovery in 3Q22 and a minor recovery is expected for 4Q22. Mexico broke its record in remittances for the 30th consecutive month and exports have also increased. 

Inflation’s non-underlying component shrank in November, said Banxico’s Board of Governors. Mexico’s inflation reached 7.82 percent in December 2022. Some of the experts highlighted that inflation’s performance beat Banxico’s expectations by being lower level than the institution’s forecasts. However, the country’s underlying inflation registered another increase in November 2022, stationing at 8.51 percent, a level unseen since August 2000.