Banxico, Mexico’s central bank, added three-quarters of a point to its base interest rate last week, lofting it to a record 8.5 percent after annual inflation sped up to 8.15 percent in July, its fastest clip since 2001.
Wages rose an average of 9.5 percent at the same time, putting more upward pressure on prices.
The rise of 75 basis points was the second in two consecutive central bank meetings.
“The inflation data were quite bad, especially core inflation,” chief economist Jessica Roldan at Casa de Bolsa Finamex said to Bloomberg. “Once we get to such a high level, inflation becomes persistent.”
Overall inflation in Mexico could reach 10 percent this year, she said.
Core inflation, which ignores food and fuel prices, is likely to rise to 7.9 percent in this quarter, the bank said, adjusting its earlier 7.4-percent estimate.
Economists polled by Reuters see inflation ending this year at a median 7.74 percent, declining to 4.5 percent by 2024.
The inflationary risk “remains significantly biased to the upside,” the bank said in a public statement.
However, because the bank offered no preview of its future plans, some analysts expect the next rate increase to be lower.
“We expect Banxico to hike 50 basis points at its next meeting,” Bank of America economist Carlos Capistran, told Bloomberg.
“By adopting a more gradual tone, [bank officials] are implying that the next monetary policy decision will likely be influenced by what happens at the Fed,” Pamela Diaz Loubet, economist for Mexico at BNP Paribas, said in a Bloomberg interview.
“Our base case is for Banxico to continue increasing rates in line with the Fed until the U.S. monetary policy outlook becomes more certain,” she added.
TREND FORECAST: As we have noted, the U.S., EU and U.K., with inflation rates at or near countries such as Mexico’s… have interest rates far below the Mexican level. For example, the U.K. inflation rate is expected to hit 13 percent this year and their interest rate is just 1.75 percent while Mexico’s inflation rate is expected to hit 10 percent and they have an 8.5 percent interest rate.
The point being, the Western nations will do all they can to keep pumping in monetary methadone to keep the money junkies on their high and artificially stimulate failing economies.
Thus, minor interest rises in those nations are in the near horizon.