Economics: First monetary policy decision of the year eases uncertainty amid heightened inflation
The mid-month release of the National Consumer Price Index (NCPI) for January showed 12-month inflation running at 7.07% alongside a continuing and especially troubling resurgence of core inflation (6.21%) that is being powered by strong gains in the goods index (7.86%). It is obvious at this point that the factors that have been fueling the rise in inflation are by no means of a transitory nature, as suggested previously by one deputy governor who in six rate reviews has broken with the majority of the central bank’s governing board.
The producer price index has sustained its uptrend while posting in the past two months rates higher than those of the consumer price index. Such price growth has been especially pronounced in sectors key to the manufacture of intermediate inputs and capital goods such as metallic products, the chemicals industry or agricultural products and the food industry in general. Meanwhile, the continuing strength of commodity prices, whether metals-related industrial inputs, grains or other agricultural products, impose additional production cost pressures on some sectors that are gearing back up in response to revived demand.
Banco de México’s Governing Board decided to opt for a second straight consecutive 50-basis-point rise in its reference rate to 6.0% a week before last in what was the sixth consecutive tightening move and, more significantly, the first rate review in which new Banxico Governor Victoria Rodríguez Ceja cast a vote. Her support for the rate hike helped reduce uncertainty, at least in the short term, as it projects the central bank’s determination to sustain its priority of trying to control inflation and maintaining its autonomy.
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