Core inflation will peak in February or March, forecasts Jonathan Heath

Core inflation will peak in February or March, forecasts Jonathan Heath

Asked about monetary policy going forward, Heath affirmed that it must have an adequate posture, although he said that Banxico recognizes that it is not necessarily as effective given the current circumstances.

“But it is what we have and we have to use it and be consistent with this inflation bubble,” said the deputy governor, who suggested calling it “pandemic inflation” in an interview with the financial group Banorte.

“It does not mean that we simply have to look at the phenomenon and say that monetary policy is not a very effective instrument and, therefore, it should not be used. No, we have to send a strong message that we are concerned about this inflationary bubble,” he said.

In an effort to contain it, Banxico increased its key rate for the fifth time in a row in December to set it at 5.50% and some analysts expect it to increase it again this month to 6%, while there is a slowdown in the productive apparatus.

Heath added that Banxico must ensure that inflation expectations, especially in the medium and long term, are not affected because although “at that time we cannot help lower inflation more quickly, we do have to follow the downward trajectory of inflation with a proper posture.

at the speed of data

Regarding the foreseeable key rate increases in the future, Heath said that from March onwards it will be “difficult” to maintain a rate of increases of 50 basis points.

“Why? Because the cycle of Federal Reserve hikes is just around the corner, so I would say that in February we are going to have the debate and see what comes out, if it is 25 or 50, and starting in March, I I know they don’t like us saying this, but it’s going to be very data-driven, it’s going to depend on the data,” he said.

When asked about the country’s economic outlook for this year in light of the contractions in Gross Domestic Product (GDP) in the last two quarters of 2021, Heath cited the lack of private investment as a key problem.

“Here the great absentee within all this, definitely, is investment, especially private investment, which is the most important, it does not look very eager to reactivate in the short term,” he said.

He also cited problems linked to the loss of strength in exports last year after a rebound, the evolution of the pandemic after the fourth wave that began in late 2021 and a labor reform in Mexico on outsourced workers.

“These factors that really explain a good part of what could be a relatively light recession in the second half of last year, could I think bottom out at some point in this first quarter,” he predicted.

“Depending on the evolution of the pandemic, depending on the evolution of all these kinds of things (…) some growth could begin to return,” he estimated.

Heath predicted that in a gray scenario for 2022, GDP could grow less than 2%, but said that if the negative factors are mitigated, there could be a small rebound in the second half of the year that could encourage an expansion throughout the next year. at 4%.

With information from Reuters



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