Mexico starts 2023 with higher inflation

Inflation in Mexico saw another spike in the first month of the year, reaching 7.91 percent over the last 12 months, according to the Inegi national statistics institute. 

The 12-month rate was above December 2022 levels (7.82 percent) and suggests that the rise in consumer prices is gaining steam. The higher-than-expected numbers mean that Mexico’s central bank is more likely to raise interest rates to 10.75 percent later today, analysts believe. 

January was the 23rd consecutive month in which inflation sat above the central bank’s 2-to-4 percent target range. Interest rate hikes are more likely when inflation stands above those levels.

Forecasters believe that the rise in inflation figures, coupled with the Mexican central bank’s reaction, will likely lead to an economic slowdown in 2023, with the country growing by just 1 percent as opposed to the 3 percent registered last year.

The macroeconomic trend in Mexico has some key elements in common with Latin America as a whole, where the post-pandemic economic bounce is expected to fizzle out this year due to similar reasons: inflation and higher interest rates. 

But other countries, such as Brazil, have already seen a declining inflation trend, down from two digits in the aftermath of the Covid crisis to 5.77 percent in January. However, questions about the long-term fiscal sustainability of those declines remain.

Mexico’s core inflation — which excludes government-regulated prices as well as highly volatile products — came in at 8.51 percent, even higher than the overall consumer price index, as Mexico’s gas subsidies continue to cushion part of the price hikes. This comes at a cost to the state’s coffers, however.

Food, both on the shelves and at restaurants, saw some of the steepest jumps in the basic basket of products — also in line with global trends, which have seen prices of basic foodstuffs jump.

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