The policy has paid off. In Mexico, inflation stood at 5.84% in May, it was its fourth consecutive month of deceleration; However, “we still cannot say that the drop in inflation in recent months is not due to monetary policy, but rather to circumstantial issues that previously worked against us and are now accompanying us,” said Jonathan Heath, deputy governor of Banco de México. , in the 12 Issuers Forum of the Mexican Stock Exchange (BMV).
Most of the slowdown is due to non-core inflation, which is not amenable to monetary policy, Heath explains, especially in the services sector; However, some global indicators are beginning to drop, such as the international prices of commodities, so it is time to pay attention to the local part, such as the increase in minimum wages, which could be a pressure for inflation from now on.
“Yes, there is evidence that there are risks on the part of the demand, yes there are very important potential risks, such as the part of labor costs, yes there is a problem of persistence and everything leads to the fact that it is very important to maintain a restrictive monetary position to combat inflation,” Heath said.
Although the slowdown is not 100% explained by monetary policy, there is evidence that inflation will go downward. In the underlying part, inflation could reach Banxico’s goal of 3% until the end of 2024, “as long as there is no unanticipated shock,” Heath said, such as a rise in the price of grains due to the conflict between Russia and Ukraine.
The deputy governor estimates that inflation could break the 7% threshold in June, and that from then on it will continue its downward trajectory, “it will be difficult, but we are on the right track,” he commented.
Heath explained that it was not until October 2022 that Banxico entered into a restrictive position, but that it was not consistent with the inflationary problem we have, now where the rate is located is consistent with the inflationary outbreak and “now what we have to do is leave the rate where it is for as long as possible to ensure that the trajectory of inflation continues downward and even accompany it until it drops to our target”, explained Heath.
According to the official of the central institute, for at least the following three decisions the rate will not drop, it could be until November, but it will depend on the evolution of the data. “We just have to make sure that monetary policy doesn’t become too tight for us,” Heath warned.
