According to the central bank’s estimates, inflation will converge to the target until the third quarter of 2024 and that core inflation will begin its decline from 2023.
“Core (inflation) is much more important to us than non-core because it is the set of prices that derive from a normal interaction between supply and demand, therefore they are the prices that in principle are susceptible to actions of monetary policy as opposed to the non-core one,” said Jonathan Heath, deputy governor of Banxico, during the presentation of Banxico’s Quarterly Inflation Report.
In its report, the entity highlighted that the decreasing trajectories reflect the monetary policy actions it has issued. The clashes caused by the pandemic as well as the conflict between Russia and Ukraine are also expected to gradually fade.
Among the upward risks that Banxico estimates for inflation are the evolution of the pandemic, a resurgence of the war, pressures from exchange rate depreciation, as well as pressures from new costs associated with the increase in the minimum wage.
With these pressures on inflation, Intercam analysts expect the central bank’s terminal rate to approach 11% before lowering the rate.
“We do not see an end to the cycle of increases until core inflation registers a clear downward trend, something that could not happen until the second quarter of 2023. It is prudent to expect the interest rate to reach close to 11% before that the end of the cycle of increases be declared,” he considered.
