Mexico Winning the Battle with Inflation

October 17, 2024 | Eddie Arrieta, Associate Research Analyst

Like many countries in recent years, Mexico has grappled with higher-than-average inflation levels, primarily driven by elevated food and producer prices. Mexico notably began tackling its inflation problem earlier than most developed countries in the wake of the COVID-19 pandemic. To that point, Banxico, the central bank of Mexico, started to raise its key rate in June of 2021, roughly 9 months before the U.S. Federal Reserve began its hiking cycle. This key rate reached a peak of more than 11% in early 2023 shortly after Mexican inflation, as measured by headline CPI, achieved a record high of 8.7% on a year-over-year basis. After leaving its key rate unchanged for nearly a year, Banxico finally started to loosen its policy earlier this year given a moderation in both core and headline CPI. Indeed, the most recent reading of core CPI, which came in at a multi-year low of 3.9%, likely allows Mexican policymakers to feel confident that their battle with inflation may be coming to an end. Going forward, lower inflation could portend additional rate cuts by Banxico. This dynamic, in tandem with nearshoring trends that have led to an increase in Mexican manufacturing activity and exports, could be conducive to strong performance for equities in the region.

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