Research Dept. News
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Monthly Report, num 354 - February 2012
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International review - Mexico
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Mexico: prices speed up while growth moderates
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In Mexico, inflation ends 2011 at an annual high but within its target range.
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In December, inflation rose for the third consecutive month in Mexico, ending 2011 at an annual high of 3.8%. This acceleration in prices reflects the rise in tobacco, food, transport and clothes but also the impact of the peso's recent depreciation, which hit the cost of imported goods but, for the moment, has not led to any second-round effects. Although we expect this trend to continue in the first few months of 2012, it is a temporary rather than an underlying trend, so we have kept to our forecast that the inflation rate will remain within its target range throughout 2012. The output gap will remain in negative terrain, which should stop domestic demand from putting too much pressure on prices - in fact, core inflation for services, which best reflects the domestic influence on inflation, seems to be staying at a relatively low level for the moment.
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In any case, the renewed vigour of inflation and perceptible economic improvement in the United States are tempering the temptation to give an expansionary shift to monetary policy. Nevertheless, Mexico's economic authorities have made it clear that they are prepared to introduce new stimuli should global economic conditions deteriorate more than expected and have a negative impact on the outlook for the local economy.
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For now, macroeconomic indicators suggested that Mexican production continued to expand during the last part of 2011, although more slowly than in previous quarters. Although it's true that this slowdown could be attributed largely to a more sluggish foreign demand, a certain deceleration is also starting to be perceived in some components of domestic demand, which would impose additional downward risks on our main scenario in which the Mexican economy would grow by around 3.5% in 2012.
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