The fight that the Bank of Mexico (Banxico) has undertaken against inflation has been very difficult for the entity in the last 18 years, and if it were a boxing fight we can say that there is a draw with an unfavorable trend for the pocket of the Mexicans.
In other words, since Banxico decided to apply its inflation target of 3% +/- one percentage point at an annual rate, in 2003 to date (220 months) it has only been able to achieve it 48% of the time, that is, in 114 months, they indicate data from the central bank itself and Inegi.
And the worst thing is that this trend will continue to be negative, since the entity governed by Alejandro Díaz de León estimates that prices will remain outside the fold at least until the first quarter of next year.
The last time that inflation began to leave the target range was last March before a very low comparison base due to the pandemic in 2020 and the increase in the price of energy and food.
The fact that “most of the time” the central bank has kept inflation at bay is an achievement for the entity and does not reflect something negative, according to Felipe Hernández, Latin America economist at Bloomberg Economics.
The governor of Banxico himself said in the presentation of the bank’s latest quarterly report that the inflation target and dynamics is a level that “has worked well for the Mexican economy.”
Banxico’s inflation target serves as an anchor , according to Luis Gonzali, Investment Director at Franklin Templeton Mexico.
“If there were no anchor or goal, it is likely that the expectations would be disordered,” said the expert, who added that regardless of the number of times the objective has been met or not, it is a goal whose function is merely psychological so that expectations are in a certain range.
In the recent quarterly report of the central bank, the inflation expectation was revised upwards to 4.8% at the end of 2021 from a previous 3.6%.
For Felipe Hernández, this new estimate is in line with the increase in inflation in recent months and he expects it to be as estimated by the central bank: transitory.
Can the inflation target range be changed?
Governor Díaz de León stressed that although the inflation target has been debated by other central banks such as the Federal Reserve in the United States (Fed), Mexico as an emerging economy does not require these changes.
The decision to change the inflation target depends on the Governing Board and this only happens when it is considered that said target can be improved. Analysts have ruled out the possibility that the central bank will modify this target in the coming months.
“We are seeing that some central banks have goals below ours and that they are advanced economies subject to other dynamics that are undergoing a process of reflection. In our case, it is an issue that is always on the table, we always review and every time we publish the monetary program -in January of each year-, it is the moment when the board makes this institutional endorsement “, highlighted the Governor of Banxico .
Jessica Roldán, director of economic analysis at Finamex Casa de Bolsa , stressed that although the objective may have changes, they would have to be adjusted to an evaluation that considers that the inflationary dynamics in Mexico has changed in the country.
“Although inflation has not been at 3% on average in recent years, it has been in the 3.5% range. I don’t think it’s the right message or the message that the central bank wants to give, ”said Alejandro Saldaña, chief economist at Ve por Más (Bx +).
The analyst stressed that to attract foreign investors it is necessary to have good macroeconomic stability and this stability includes price stability.
“When there is price stability in the economy, interest rates tend to be more stable and relatively lower. This helps lower the financial cost and is positively reflected in consumption, investment and growth in the long term, ”added Saldaña.
Felipe Hernández, from Bloomberg Economics, highlighted that beyond the fact that Banxico does not meet the inflation target, foreign investors analyze the monetary policy response to high inflation and it is expected that only if inflation does not subside, they could have movements in the monetary policy decision.
