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Analysts were wrong again

The general inflation projections of the Bank of Mexico, published in the monetary policy announcement last Thursday, December 16, stood at 7.1 and 3.5 percent for the end of 2021 and 2022, respectively.

Inflation is anticipated general converge to goal point of 3 percent until the end of 2023, that is, in two more years.

The forecasts of general inflation in the survey among specialists in the economy of the private sector of Banxico, published this December 17, rose to 7.6 percent for the end of this year and 4.2 percent for 2022.

Although expectations for 2023 remain at 3.6 percent, they are above the goal and run the risk of deteriorating due to the prolongation of inflationary pressures and the difficulty to combat them.

There are growing concerns about high levels of inflation, where the shocks that have affected on prices are no longer considered transitory nor of temporary effect.

Thursday, Banxico Not only did it announce an increase in its benchmark rate of half a percentage point, double what most analysts anticipated, going from 5.0 to 5.5 percent, but showed a change of rhetoric.

The reference to “the shocks that have affected inflation are considered to be primarily transitory,” which was still included in the November 11 monetary policy statement, was removed from this week’s announcement.

Central bank assumes a tone of open concern with more restrictive rhetoric in the message to the market.

It remains to be seen if that bias is maintained with the new composition of the governing board due to the incorporation in January of Victoria Rodríguez as governor.

In the survey carried out by Banxico itself among specialists from the private sector, inflationary pressures are for the first time among the three main factors that could limit the growth of the economy mexicana, along with governance issues.

In the survey published this Friday, specialists consider that, at a general level, the main factors are associated with governance (48 percent) and internal economic conditions (22 percent).

But at a particular level, the main factors are domestic political uncertainty (15 percent of responses), public insecurity problems (14 percent) and inflationary pressures in the country (12 percent).

All three imply an internal restriction on economic growth in an environment of fragile recovery.

Incidentally, growth prospects for the Mexican economy were revised down by 2021, from 5.7 percent in the November survey to 5.6 percent in the December survey.

Even if by 2022 Growth estimates remain stable at around 2.8 percent, suggesting that our economy will grow at half of what it advances this year.

It is more than obvious that the recovery will not be able to maintain its pace beyond the ‘rebound effect’ of 2021 and that next year it will slow down significantly.

What’s more, a rebound in infections should not be ruled out due to a new wave of covid-19 associated with the possible spread in Mexico of the omicron variant of the SARS-CoV-2 virus.

While mobility is unlikely to be restricted, the recovery process may be affected to which is added the negative effect of persistent disruptions in supply chains on the automotive industry and other manufacturing activities.

While the balance of risks for growth is skewed to the downside, that corresponding to inflation has deteriorated and is on the rise, as Banxico warned at its meeting this week, in which Alejandro Díaz de León was fired as central banker.

Wow factor or late decision? Maybe surprised plus that most analysts in the market anticipate a quarter point increase in the rate and not half a point, as it happened.


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