Data released this week by the National Statistics Agency (Inegi) showed the consumer price index to have risen by 0.59 percent in December, leaving inflation for 2017 at 6.77 percent – the highest level since 2000, when the rate was 8.96 percent.
According to Inegi, products and services that saw the highest price hikes in the final month of 2017 were zucchini, eggs, tomatoes, limes, airline flights, Magna gasoline, liquid gas and tourism packages. The cost of liquid (LP) gas increased by around 44 percent last year, Inegi said.
Alejandro Díaz de León, the recently installed Governor of Banco de Mexico (the nation’s central bank), said he believes inflation has reached its upper limit and will begin to fall this month and throughout 2018. His predecessor, Agustin Carstens, had predicted the same scenario in September of last year, but the resulting decline failed to materialize.
The Banco de Mexico inflation target for this year is around three percent, much the same as the institution had predicted at the start of 2017. Steep hikes in the price of gasoline in January of last year contributed to a sudden surge in inflation, something Díaz de León has ruled out for 2018.
However, Díaz de León admitted that external factors, such as the outcome of the renegotiation of the North American Free Trade Agreement (Nafta) and repercussions from the recently approved tax initiative in the United States, are factors that might influence the inflation rate in 2018.
On the domestic stage, economic uncertainty caused during a presidential election year could also have a bearing on consumer prices, according to the Centro de Estudios Económicos del Sector Privado.
While growth estimates for 2018 hover around a modest two percent, some analysts believe the outlook is more promising. Bloomberg has put a positive spin on Mexico’s fortunes, suggesting that the peso could be one of the world’s best-performing major currencies in the first half of 2018. Although Mexico’s currency tumbled to a nine-month low against the dollar last month, some forecasters tracked by Bloomberg say that the potential for growth in Mexico could see the peso rally by as much as five percent in the first half of this year, and as much as 17 percent by December 2018. A victory by leftist presidential candidate Andres Manuel Lopez Obrador in the July 1 election would likely affect these predictions, the forecasters add.
Meanwhile, one-month government Treasury Bonds (Cetes) are at their highest rate for several years – 7.25 percent – but their value is diminished by the lofty inflation rate.