Higher vegetable prices were one factor in higher inflation. Higher vegetable prices were one factor in higher inflation.

Inflation hit 6.77%, highest in 17 years

Annual inflation rate is expected to remain about the same for the rest of the year

Inflation reached a 17-year-high of 6.77% last year, its highest level since May 2001 when it reached 6.95%, according to the National Statistics Institute, Inegi.

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The figure is well above the Bank of Mexico (Banxico) target level of 3%.

Inegi said the National Consumer Price Index (INPC) showed a monthly increase of 0.59% in December, up from a rise of 0.46% in December 2016.

Inflation spiked at the beginning of the year following a massive fuel price increase. Since then, higher fruit and vegetable prices have been another factor that contributed to the overall increase in inflation.

On average, their cost rose 17.5% last year compared to a 5.4% average annual increase over the previous five years, Guillermo Aboumrad of brokerage firm Finamex said.

The price of tomatoes experienced the biggest hike last month, increasing by 42.9%, followed by zucchini which rose by 26.8%.

At the other extreme, onions, serrano peppers and cucumbers all decreased in price last month.

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According to forecasts by 16 banks and economic analysis firms consulted by the news agency Reuters, annualized inflation will remain at around 6.75% until the end of the year.

However, analysts say news of the inflation peak will place additional pressure on Banxico to raise interest rates at its next policy meeting on February 8.

Goldman Sachs economist Alberto Ramos said that a rate hike is “a significant probability” due to the volatility of the Mexican peso, higher than expected inflation and economic uncertainty due to the renegotiation of the North American Free Trade Agreement (NAFTA).

If it does raise its benchmark lending rate a further 0.25 points to 7.5%, it will be the second increase in just three months.

On December 14, the central bank increased the rate from 7 to 7.25%, arguing that it was justified by an inflation rate that was trending upward.

Banxico is targeting inflation of 3% and says that the goal will now be reached at the end of 2018, later than it had previously predicted.

At the start of 2018, central bank Governor Alejandro Díaz de León told the newspaper Milenio that even though a hike in interest rates acts as a disincentive to consumption and investment, adjusting monetary policy helps slow down inflation and therefore leads to greater confidence in the economy as a whole.

“Although in the short term it implies an increase in the cost of finance, we feel that it shields the economy from confronting these shocks . . .” he said.

Source: Milenio (sp), Reuters (en)

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  • WestCoastHwy

    The funny thing about the Mexican economy is that, it is a completely false economy. First of all there are obsessive taxes across the board. Then there’s the financial institution that charges very high interest rates of which no business could grow. Not withstanding the fact that consumers pay weekly interest should also be calculated as a type of inflation. And last but not least there is a BIG presence of organized crime and governmental embezzlement.

    But who cares, Mexicans are just happy because they are told to be by Guadalupe; the women behind the curtain.

    • BB

      Ay probrecito! You’re just jealous that even with all its money and military might, the US doesn’t rank higher on the index.

      • WestCoastHwy

        Jealous, your oppression has blinded you. Please enjoy your renowned freedom, please.

  • Gary Blake

    Personally I have always had a huge problem with the actual REPORTED infalation rate in Mexico, always false, vs the ACTUAL much higher rate. Over the past 5 years prices have about tripled across the board. Bus fares are a good example. (Primera Plus etc) In the real world fuel prices are dictated ONLY by the price of a barrel crude not corruption! Mexico announced it was going to reduce pump prices gradually to bring in line with US prices, after ONE reduction, months later HUGE increases at the pump once more. PEMEX the “POSTER CHILD” and world joke of how NOT to run a company, so top heavy with corruption, it ain’t funny no more!
    The story talks about 20, 30 and 50% increases in food prices. The common “Lie” on WHAT a bargain Mexico is for tourists at 20 pesos to dollar, let me tell ya, “Pedro’s” TACOS JACKED his price where you are paying more, than you were. Mexico is pinned to the USD, all “AGRI” products come from the USA, fertilizers and pesticides, these have to be bought and paid for in dollars, NOT worthless pesos, this drives up the prices and inflation.
    If when the peso was 12 to the USD, and you were paying the equiv of $8.00 USD for your dinner in Mexico, at 20 to 1 why is your dinner not $4.00 USD with the HUGE bargain Mexico now is? WHY is that same dinner TODAY at 20 to 1 now equiv of 10 USD? Because Pedro AIN’;T that stupid!
    The day the rate changes against Mexico, is the split second prices increase throughout Mexico, simple fact.
    The Mexicans ALL count and consider “Their Money” in and via USD, PERIOD!
    Mexico IS a “false Economy” and has among the highest and most punitive trade tariff’s in the world, GOOGLE IT Bucko!

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