One of the most important economic policy documents in the country is the Quarterly Inflation Report prepared by Banco de México. In it, not only the official diagnosis on the economic situation of the country, its main problems and the current behavior of prices in Mexico are exposed, but also the perspective of the central bank that will give foundation to important measures of monetary policy in the following months, which are fundamental for the decision-making of the different agents and for macroeconomic stability.
In terms of economic growth, the greater optimism of the central bank stands out. As we have commented in this space, economic activity in the first part of the year has been negatively affected by the reappearance of infections and, even so, Banxico’s estimate of GDP growth for this year advanced to 4.8% from 3.3 % in your previous report. It is not a minor adjustment, a point and a half of higher growth means, for example, more jobs (at least 300 thousand) and greater government collection capacity and, therefore, higher public spending on social programs. This more optimistic view is fundamentally based on the fact that the recovery in the United States will be much stronger than what was anticipated a few months ago, so the drag on the Mexican economy will be greater.
Regarding inflation, despite the drastic increase in the outlook for economic growth, the adjustment for the last quarter of this year was only slightly upwards, placing it at 3.6% per year, 0.3 percentage points more than in the last report. This new inflation estimate, although more pessimistic, is still in the range of variability of the central bank’s specific target (3.0% +/- 1%), and proposes reaching the target in the next year.
In general, Banxico’s view on inflation is encouraging to the extent that, with the exception of the expected jump in inflation for April and May (where inflation is anticipated high and close to 5.0%), the growth of prices in Mexico would be controlled.
We must be very clear that we are talking about forecasts, not hard data and much less a reality, so the latter could be different from what the official projections indicate. In this sense, Banxico highlights its balance of risks, which in the case of economic growth is worth mentioning that its projection is subject, among other factors, to the success of international vaccination programs and in our country; In other words, if the strategy that guarantees “herd immunity” is not successful in the specified times, the risks of growing less than at the estimated rate will be much greater.
In the same vein, on the inflation side, it is worth mentioning that the greatest upward risks are found in a rebound in commodity prices and in greater financial instability that drives a depreciation of the exchange rate, which coincidentally, they are facts we are seeing now. We will have to wait to see that Banxico’s optimism consolidates.
Melissa Galbraith is the World News reporter for Globe Live Media. She covers all the major events happening around the World. From Europe to Americas, from Asia to Antarctica, Melissa covers it all. Never miss another Major World Event by bookmarking her author page right here.