Slowing inflation and growing economy good news for Mexico’s financial health | Courthouse News Service
Tuesday, November 28, 2023
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Slowing inflation and growing economy good news for Mexico’s financial health

Food prices remain high, but are on the way down, with inflation there at the lowest annual rate in nearly two years.

MEXICO CITY (CN) — Mexico received a heartening bill of financial health Friday, as inflation continued to drop and economic activity grew for the fourth month in a row.

The annual inflation rate fell to 4.44%, decreasing for the ninth consecutive fortnight, according to Mexico’s national statistics agency Inegi. It was the lowest since the March 2021 rate of 4.12%.

The good news was compounded by Inegi’s economic growth indicator for July, which showed economic activity in Mexico grew by a seasonally adjusted 0.2% from the previous month and 3.5% annually.

This growth was driven primarily by construction and manufacturing, which saw annual growth rates of 12.49% and 1.99%, respectively, according to an analysis by the financial firm Banco BASE. The secondary sector of Mexico’s economy saw an annual growth rate of 3.85%. 

Activity in the services sector grew by 3.22%, with retail trade standing out at 5.81%. 

“This is good news for the Mexican economy,” said Banco BASE’s director of economic analysis Gabriela Siller. 

Some of the best news came in relation to food prices. The annual food inflation rate fell to 7.73%, its lowest since the November 2021 rate of 7.66%. Other merchandise saw a rate of 4.74%, the lowest since February 2021. 

Still, these rates are far higher than the ideal, Siller said. 

“Continuing deceleration of inflation is very good news, but we still can’t claim victory, as it’s still far from the 3% goal,” she said. “What’s more, we’re still seeing renewed inflationary pressures, one of which that stands out is the elevated budget deficit for 2024.”

Indeed, the news of slowing inflation may be more exciting for economists than for merchants and consumers. Food vendors in the bustling Coyoacán market in Mexico City said they’d felt the effects of improved economic activity, but that prices had not changed much since Mexico saw a rate of 7.28% in February 2022, its highest inflation for that month in over two decades. 

“Most of us have been able to make up for losses, and now see a way out as more possible,” said Maribel Santeliz, who runs a small coffee shop out of one of the market stalls. “There are more people, and it feels like we’re getting back to normal.” 

She attributed the higher flow of customers to more people traveling and going out after the Covid-19 pandemic. While more business gives her reason to be optimistic about the future, she still worries about inflation, especially with elections coming in 2024. Campaigns could put pressure on budgets and cause the government to raise taxes, she said. 

Down the aisle, produce vendor Alfredo Pulido likewise said he has seen more economic activity, but prices remain the same. Prices for avocados, onions and seedless limes remain high.

“They haven’t gone down, but they’ve at least stayed the same, pretty much,” he said. 

Food prices elsewhere in the market remain at record highs, most notably tortillas, which at 22 pesos per kilogram (US $0.58 per pound) still cost around twice as much as they did before inflation swelled in response to supply chain issues arising from the Covid-19 pandemic and Russia’s February 2022 invasion of Ukraine.

Still, while vendors may not notice the effects of slowing inflation, the trend likely has had an effect on sales, Siller said. 

“The deceleration of inflation helps consumption,” she said. “But there are still worries of high inflation in the service and food sectors, which causes people to not feel like inflation is going down.”

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Categories / Economy, International

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