According to information from Inegi, non-core inflation stood at 10.64% at an annual rate, driven mainly by fruits and vegetables (25%), agricultural (14.33%) and energy (9.16%).
“National agricultural production decreased significantly in the first half of the year, falling 5% compared to the same period a year ago, which was reflected in an increase in the prices of fruits and vegetables,” Monex said in a report.
The increase in the price of fruits and vegetables is due to factors that monetary policy has no effect on, since “it has to do with climatic issues, first due to droughts and then due to heavy rains,” Quiroz explained.
“For Mexico, when the non-core component rises for several consecutive fortnights, this ends up contaminating the core component and, therefore, affecting medium- and long-term inflation expectations,” said Gabriela Siller, director of economic-financial analysis at Banco Base.
“These increases in the non-core index could have second-order effects, which could spread to the dynamics of other prices.” For example, “the producer who sees the price of energy rise and passes it on in a more direct way to the consumer,” added Alejandro Saldaña, economic director of Grupo Financiero Ve por Más (BX+).
“On the other hand, when consumers see food prices growing at double digits, this can start to distort their price expectations and this can cause inflation to not fall as quickly,” he added.
“It’s not that (non-core inflation) will decrease next month, it will remain very strong for at least four to five months, and the core inflation will spread. And all the paradigms of inflation and monetary policy will be broken,” said Iván Franco, founder of the consultancy Triplethree International.
Despite this situation, Saldaña believes that “there is good news on the services side, consistent with the economic slowdown. However, we believe that they will continue to show reluctance to lower prices.”
However, he added, there are still “strong wage pressures, and we must remember that labor is the main input in the services sector. This will limit the speed and magnitude of future declines.”
Inflation in goods has also been declining as the shocks of previous years – the pandemic and the war in Ukraine – have faded. Inflation is no longer imported and is due to internal factors.
This behavior is explained by “the slowdown we have seen on the demand side, particularly the consumption of goods,” said Saldaña.
Although, when inflation began to rise, due to the coronavirus pandemic, the central bank said that it would be a transitory issue, over time it has been modifying the estimate of convergence to the INPC target.
According to the minutes of the meeting of the Board of Governors of the Bank of Mexico, last June, the majority of its members “mentioned that general inflation is still expected to converge to the 3% target in the fourth quarter of 2025.”
