“We will be vigilant to ensure that there is no contamination in the price formation process, but it is also expected that these effects will only be short-term and will not affect market expectations,” he said.
In June, the general inflation was 4.98% the highest figure in a year. The figure was pressured by the performance of non-core inflation, which was 7.67%, the highest since October 2022. Core inflation was 4.13%.
When asked whether the high price of agricultural products could not affect the inflation of services, Mejía Castelazo believes that this transfer occurred during the pandemic with the increase in international reference prices.
He added that his team of analysts observed that the price of services is behaving more, regardless of the economic cycle in which different economies find themselves.
The deputy governor’s analysis is that inflation in services is high in economies with and without economic growth, so the correlation with the economic cycle is not clear.
“In the particular case of Mexico, what we saw is that services were not able to pass on these higher costs to consumers in the same way, let’s say immediately. The recovery in the prices of services is still something that is precisely explaining their persistence,” he explains. “I hope that these increases that we are seeing are only short-term, so there is no expectation that there will be a transfer to services, that is, in this case, inflation expectations.”
In the monetary policy decision last June, in which it was voted to maintain the reference rate at 11%, Mejía Castelazo was the only member who voted to lower the rate due to the economic slowdown and volatility in the exchange rate.
Signs of a slowdown in the economy are in the IMSS employment data, which in May and June was negative, as well as the data on industrial production, which showed a growth of 0.6%.
Although the slowdown in the economy will help inflation to fall, Mejía rules out this being a lifeline for monetary policy.
Regarding the volatility that has occurred in the exchange rate since the results of the presidential election were announced and which is considered another shock to inflation, the deputy governor hopes that this factor will ease. He even believes that the worst of the volatility has already passed.
Going forward, monetary policy will operate cautiously.
“I’m not saying that we have to have a relaxed monetary policy, but what I am saying is that we had to take the reference rate to a historically high level, 11.25%, to also address the tail risks that were being experienced at that time,” he said.
Mejía recalls that in March 2023, when the bank had to raise the rate to historic levels due to the uncertainty caused by the pandemic and in the midst of the conflict between Russia and Ukraine.
Although the deputy governor believes that there may be a rate adjustment next August, he rules out the possibility of a cycle of cuts.
“In the case of these adjustments to the degree of restriction, these would have to be gradual, and not necessarily continuous. What do I mean by this? That gradualness will allow us to observe how our decisions are behaving in the impact that they may have on the economy and also in the case of whether they are continuous or not, it will depend on the risks that we face going forward,” he adds.
The United States variable in Mexican monetary policy remains relevant. It is expected that the US central bank make three rate cuts and although Banxico is evaluating the conduct of monetary policy, there is still a rate differential that allows them room to maneuver.
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