Mexico’s annual inflation hits 21-year high in March

Bloomberg

Mexico’s annual inflation accelerated more than expected in March to its highest level in over two decades led by fuel prices, putting additional pressure on the central bank to continue boosting interest rates.
Consumer prices rise 7.45% from the same month a year earlier, above 7.38% median estimate of economists , the national statistics institute reported. On a monthly basis, prices rose 0.99%, more than all the estimates by analysts, who had a 0.92% forecast.
Core inflation, which excludes volatile items like fuel, rose 6.78% last month from a year earlier, also above the median estimate of analysts and its fastest pace since April 2001. Sustained core price increases have particularly worried policy makers as a sign that elevated inflation in Mexico could be more persistent than previously predicted.
Mexico’s central bank has raised interest rates by 50 basis points in each of its last three meetings, and it is expected to continue increasing borrowing costs in order to tame inflation expectations. Last month, for the first time since its tightening cycle started in June, its members voted unanimously, to raise the key rate to 6.5%.
At the bank’s interest rate meeting last month, one board member argued the board should analyse whether “front-loading” its hikes could curb inflation faster, according to meeting minutes published Thursday. The comment suggested the member could be willing to vote for a 75-basis-point increase — which would be the highest since bank started targeting an overnight rate in 2008. However, the other four members seemed more inclined to keep up the current tightening rate.
“I expect the next four hikes to be 50 basis points each,” said Carlos Capistran, chief economist for Mexico and Canada at Bank of America Corp., noting that there’s a possibility of a 75-basis-point hike. Although “the minutes show that at least one board member clearly supports a faster pace, but there is heterogeneity and other board members prefer gradualism.”
Mexico’s 2-year TIIE swap rate rose as much as 10bps to session high 8.76% after March inflation data surprised on the upside, before trimming gains to 6bps following Banxico minutes. The curve now prices about 270bps hikes in the rest of 2022.
Banxico, as the central bank is known, says inflation would peak in the first quarter, then slow to 5.5% by the year’s end. Yet economists have a more pessimistic view, with analysts surveyed by Citigroup Inc.’s local unit raising their 2022 inflation forecast to almost 6% this week from 5.7% two weeks earlier.