Heath stressed that monetary policy follows its course towards gradual normalization. While inflation projections are fulfilled, Banxico can continue with casualties. The objective is to reach a level close to 3% in the middle of next year.
To the extent that the forecasts materialize, there is enough space to continue cutting sight of the goal
Jonathan Heath, subgovernor of the Bank of Mexico.
The subgovernor clarified that it is not about relaxing the discipline, but about taking advantage of current conditions to reduce the cost of money. If inflation converges at the planned levels, the reference rate should be located in a neutral range, about 6%, according to calculations from the Central Bank itself.
During his participation in the annual Moody’s conference, the subgovernor of the Central Bank explained that the underlying inflation achieved historical minimums at the end of last year, but since April he resumed an upward trend. Seven consecutive fortnights with increases confirm the difficulty in consolidating a sustained decline. What worries him most is the persistence in merchandise and services linked to food, which remain very sensitive to the increase in wages and, especially, to the minimum wage.
In Mexico, the minimum wage has continuously rises for eight years and, according to official policy, will continue to grow in double digit at least until 2030. For Heath, this dynamic places a “structural floor” at prices in certain sectors, especially in restaurants and food trade. Although in the first years the adjustments did not impact inflation, today the effect begins to feel more strongly.
The labor market reflects these changes. During 2023, salaries in the private sector grew at two -digit rates and formal employment showed great dynamism. However, in recent months the creation of places practically stagnated. “In these months it is equal to what I was 12 months ago, we no longer have a new generation of formal employment,” said the official, although he clarified that the salary increases are still high in front of the economic environment.
International comparison
The debate on whether Mexico should adopt a dual mandate – inflation control and employment promotion, as in the United States – was another of the issues addressed. Heath rejected that possibility. He assured that the current framework already implicitly incorporates considerations on economic activity, without the need to change the objectives.
The official recalled that the pressure of governments to force casualties of rates has been constant in all administrations, not only in Mexico, also in other countries. Therefore, he defended the independence of the Central Bank and asked to shield it from any attempt to interference.
