The Mexico Equity and Income Fund, Inc. evaluated the pros and cons that may impact inflation in Mexico in 2023, considering various sources of information.
In 2022, characterized by slower global economic growth and tight financial conditions, Mexico’s Gross Domestic Product (GDP) grew 3.1% year-over-year, seasonally adjusted, in real terms, according to the National Institute of Geography and Statistics (Inegi).
Going forward, the challenges for economic activity in 2023 relate to the expected continued complex global economic environment and greater uncertainty leading to low dynamism in domestic economic activity during the coming quarters.
Pros and cons for inflation
As upward pressures are the following factors:
- Persistence of core inflation at elevated levels.
- Pressures on energy or agricultural prices.
- Reopening of China‘s economy.
- Exchange rate depreciation. (The local currency shows an appreciation of 8.11% against the U.S. dollar for the Fund’s Semi-Annual period ended January 31, 2023, according to a Bloomberg source).
- Most significant cost-related pressures.
Downward pressures:
- A slowdown in the global economy greater than anticipated.
- Decreasing intensity of geopolitical conflict.
- Better functioning supply chains.
- A lower pass-through effect of some cost-related pressures.
- A greater than anticipated effect of the federal government’s measures to combat high prices.
The balance of risks to the inflation trajectory over the projection horizon remains skewed to the upside, according to Banxico.
Core inflation
In 2022, consumption remained remarkably strong in Mexico, while remittances and tourism generated substantial numbers in 2022.
Remittances grew annually by 13.4 percent, registering $58.5 billion, and tourism reached $28 billion year over year, an increase of 41.7 percent.
Banxico estimated core inflation at 4.9% at the close of December 31, 2023, and continues to assess that core inflation will converge to its target of 3% +-1% by the fourth quarter of 2024.
At the end of January, core inflation in Mexico stood at 7.62 percent.
