Analysts raise inflation estimates and lower the outlook for Mexico’s economy

Dec 17 (common sense) – The consensus of private sector analysts closed the public with upward revisions in inflation forecasts for 2021 and 2022, in line with the complex development of consumer prices in Mexico, which at the end of November reached a two-decade high.

In addition, the economists consulted lowered their forecasts for the expected performance of the economy for the third consecutive month and raised their expectations for the exchange rate.

The consensus of 37 analyzes of private banks and brokerages revised their expectations for inflation growth in Mexico, from 7.22 to 7.60% – the maximum given a record high -, according to the monthly survey. Prepared by Banco de México.

Analysts’ expectations of inflation even exceed estimates of the Banco de México board of directors, which expects an average of 7.1% at the end of the year.

In addition, specialists consulted by the Bank of Mexico raised their estimates of next year’s inflation for the fifth consecutive month, from 4.03 to 4.16%, the highest level since reference to this variable. In its latest monetary policy statement, the bank’s board of directors estimated that inflation would close in 2022 at around 3.5%.

The survey also revealed that 12% of analytical groups consider that inflationary pressures could hamper the country’s economic growth in the next six months, compared to 1% of those who expressed this view in February.

The recovery in inflation prompted central institutions in various countries to raise interest rates to try to contain the pressure on prices, including the Bank of Mexico, which surprisingly chose a 50 basis point increase in its target rate one day to set it at 5.5%.

Other emerging countries are also leaning towards tighter monetary policy. Brazil last week raised the Selic reference rate by 150 points, from 7.75 to 9.25%, despite the fact that its gross domestic product contracted by 0.1% during the third quarter.

In the developed world, Britain became the first G7 economy to raise interest rates since the beginning of the pandemic, while the United States announced plans to accelerate the reduction of its asset buyback program (known in financial jargon as diminishing) due to inflationary pressures and the possibility of raising interest rates three times.

Regarding Mexico’s economic performance, private sector analysts estimated a 5.6% advance this year, or 0.1 percentage point lower than the previous survey and the lowest level since the May survey. For the following year, economists cut their forecasts to a lesser extent, from 2.8 to 2.77%.

Governance in the country is a concern for 48% of the analysis groups consulted by Banco de México, especially internal political uncertainty (15%) and problems of public insecurity (14%). Similarly, 22% of these categories see that local economic conditions can affect the performance of the national economy in the first half of next year.

Finally, the economists surveyed estimated that the Mexican peso will depreciate against the dollar this year, from 20.85 to 21 units per US currency.

For the coming year, analysts also lowered the forecast for the value of the Mexican peso, from 21.30 to 21.65 units per dollar.

* Cesar e Perez contributed to the development of this story.