Low inflation is benefited from GDP stagnation

 

Last year the Mexican economy recorded an annual inflation rate of 2.83 percent. This was its second lowest number since 1970 and the smallest increase for a calendar year since 2015 (when the index rose 2.13 percent), INEGI has reported.

December 2019’s 0.56 percent inflation rate was mostly attributed to rises in services.

Only mild increases in energy costs, after a 12 percent increase in 2018, was one of the main factors of last year’s good results. Food and beverage costs rose 2.52 percent while service prices rose 3.64 percent.

Having an annualized inflation like this is good news, however, we must also consider that last year’s Gross Domestic Product (GDP) grew 0 percent, far from the 4 percent expected by President Andrés Manuel López Obrador.

While the National Consumer Price Index (INPC), the broadest measurement of prices in Mexico, had good results, Mexican businesses are expecting higher growth, analysts say.

To face the inflation issue, Banco de Mexico cut the key interest rate by a quarter point for a fourth straight time on Dec.19 to 7.25% and is expected to repeat the same reduction early this year.

The national inflation rate in December was within Banco de Mexico’s expectations for the seventh consecutive month, which is 3 percent annual inflation with tolerance of 1 percent in both directions.