US DOLLAR REPORT
MAY 14, 202110:38 AMUPDATED A MONTH AGO
UPDATE 1-Mexican inflation likely peaked in April, central bank board member says
By Reuters Staff
(Adds comments from central bank board member, background)
MEXICO CITY, May 14 (Reuters) - Mexico’s inflation likely peaked this year when it breached the 6.0% level in April and should decline to below 5.0% by the end of this year, central bank board member Jonathan Heath wrote in an article published on Friday.
Mexico recorded faster-than-expected annual inflation of 6.08% last month, the highest level since December 2017, moving well above the Bank of Mexico’s target level of 3%, with a 1-percentage-point tolerance range above and below that.
“It’s very likely inflation will begin a slow downward trajectory during the remainder of the year and as the effects of the pandemic dissipate we should see a return to a certain normality next year,” Heath wrote in Forbes Mexico.
“However, the path of this pandemic inflation is likely to be long and winding, so it will not be easy,” he added.
On Thursday, the Bank of Mexico, or Banxico as it is known locally, kept its key interest rate steady in a unanimous decision by its five-member board that reflected growing concerns about the path of inflation and triggered speculation the next move would be a hike.
Heath underscored that for monetary policy to work well it is key to send “clear, firm and transparent messages ... the objective is to ‘anchor’ (inflation) expectations as close as possible to the permanent and precise target of 3.0%.”
If medium and long-term market expectations were for 3.5% inflation, as is currently the case, the most likely scenario is that headline inflation will converge towards that number and not the bank’s target, he warned.
“It is fundamental that the bank maintains credibility in its actions,” he added. (Reporting by Anthony Esposito; Editing by David Alire Garcia and Paul Simao)
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