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Upturn of 7.9% in US inflation will ‘be felt’ in Mexico

Inflation in the United States accelerated in February to its highest level in four decades, mainly driven by the rebound in energy prices, which have skyrocketed in recent weeks due to the conflict in Ukraine, and analysts warn of impacts for the economy Mexican.

The US Department of Labor reported that annual inflation was 7.9 percent, the highest since January 1982, and the core index rose 6.4 percent.

In its monthly comparison, inflation was 0.8 percent, the highest since October of last year. “The gasoline index increased 6.6 percent in February and accounted for nearly a third of the monthly increase,” the Labor Department said.

At an annual rate, gasoline prices rose 38.0 percent, and other relevant increases were reported in used cars, with 41.2 percent, 23.8 percent in gas and 9.0 percent in electricity rates.

The president of the United States, Joe Biden, indicated that inflation is beginning to feel the impact of price increases due to the conflict in Ukraine.

“A big contributor to inflation this month was rising gas and energy prices, as markets reacted to Putin’s aggressive actions. As I have said from the beginning, there will be domestic costs when we impose crippling sanctions in response to the war provoked by Putin, but Americans can know this: the costs we are imposing on Putin and his cronies are far more devastating than the costs we face.” said the president.

They see risks for Mexico

Analysts warned that higher levels of inflation in the United States will impact the Mexican economy, due to the higher cost of some imports, and the impact of higher interest rates.

Mario Correa, an independent economist, considered that given the increase in inflation in the US “it is clear that a firm response from monetary policy is required and the Federal Reserve is preparing to begin to adjust its position.”

So in Mexico, “this adjustment of US monetary policy will represent less favorable financial markets, which will put pressure on our own financial markets and will require a firm response from Banxico’s monetary policy, which is already in action,” he added.

Ramón de la Rosa, deputy director of economic analysis at Actinver, warned that there will be two effects on the Mexican economy; the first will be directly for the consumer because some products that come from the US will be more expensive and that will affect national inflation.

On the other hand, he explained that the increase in the prices of raw materials will have an impact on the production side and that increase will be transmitted to consumers.

Gabriel Pérez del Peral, professor at the UP School of Government and Economics, assured that due to high inflation in the US there will be damage to Mexico’s public finances, because the current government promised a low price for gasoline and this will cause a decrease in the collection of the IEPS.

Ricardo Aguilar Abe, chief economist of the Invex Financial Group, pointed out that the impact in Mexico will be moderate because the greatest pressures come from the side of products such as used cars and housing prices.

“But where we do see effects in both countries, it is in the part of agricultural products and energy, affected by the geopolitical conflict, because international prices cannot be fully controlled.”

stock markets retreat

Stock markets fell yesterday, due to the rise in inflation in the United States, due to the possibility that the Fed adopts a more restrictive stance on yields and due to the situation of the war in Ukraine.

The Dow Jones was down 0.34 percent, the S&P 500 was down 0.43 percent, and the Nasdaq was down 0.95 percent.

In Mexico, the S&P/BMV IPC fell 0.97 percent to 53,387.62 points, while the FTSE BIVA fell 0.93 percent to 1,999.95 points.

In this context, the peso closed stable, with a slight advance of 0.7 percent, to settle at 20.9527 units per dollar. “The pressure on the exchange rate comes from the external sector in the face of persistent geopolitical tensions,” Vector analysts said.

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