(Bloomberg) — Mexico posted its fastest annual inflation in almost 21 years as the central bank prepares to boost interest rates for the fifth consecutive meeting next week.
Consumer prices rose 7.37% in November from a year earlier, more than double the central bank’s 3% target rate and the fastest pace since early 2001, the national statistics institute reported Thursday. The increase was above the 7.24% median estimate of economists surveyed by Bloomberg.
Core inflation, which excludes volatile items like fuel, stood at 5.67% versus a year ago.
“This is a bad number,” said Andres Abadia, an economist at Pantheon Macroeconomics. “Underlying pressures continue to rise rapidly due to an array of shocks, including high commodity prices and the reopening.”
The spike was mostly driven by fresh food prices, particularly fruit and vegetables, which rose 17.8% compared to a year earlier. Corn tortillas, a staple of the Mexican diet, rose the most since early 2012, at 16.9%.
The board of the central bank, known as Banxico, is expected to deliver its fifth straight quarter-point interest rate hike next week, taking borrowing costs to 5.25%. The minutes of the bank’s last policy meeting show one member said a half-point increase was needed but could unsettle markets.
What Bloomberg Economics Says
“The outlook raises concerns about shocks spilling over to prices of other goods and services and contaminating inflation expectations. It supports expectations for the central bank to continue increasing interest rates. Markets may price in a higher probability that policy makers will raise the benchmark rate by more than 25 basis points in next week’s meeting.”
Felipe Hernandez, Latin America economist
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Read more: Banxico Unlikely to Deliver Bigger Hike Now, Minister Says
However, Deputy Finance Minister Gabriel Yorio said this week he didn’t expect a 50 basis-point hike. There’s been debate among board members about whether the current price shocks are transitory, with all four increases since June decided by split votes.
“Although we recognize that the odds for a 50 basis-point hike have increased, we stick to our call that Banxico will hike rates by 25 basis points,” said Pamela Diaz Loubet, an economist at BNP Paribas.
Mexico’s monetary policy is still in accommodative terrain and must respond decisively to inflationary pressures, Banxico board member Irene Espinosa said in a Banorte podcast interview published on Wednesday. The bank’s gradual approach to monetary policy has allowed an orderly adjustment of the economy and financial markets, she also said.
The Dec. 16 policy meeting with be the last one with Alejandro Diaz de Leon leading Banxico. He will be replaced by Victoria Rodriguez Ceja, who is set to become Mexico’s first female central bank governor starting 2022.
Read more: Banxico Poised to Have First Female Governor After Senate Vote
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