Mexican economy

Mexico City. Inflation in Mexico eased in the first half of August, supported by fresh food. The national consumer price index (INPC), which is launching a basket and weighting structure, registered a reduction of 0.03 percent compared to the previous fortnight. Thus, annual inflation stood at 5.16 percent, according to the report released this morning by the National Institute of Statistics and Geography (Inegi).

Starting in the first half of August 2024, the INPC will be measured with an updated basket and weighting structure, in accordance with the new spending patterns of Mexican households, identified by the National Seasonal Household Income and Expenditure Survey, conducted throughout 2022 (ENIGH EST 2022). The result is linked to the current index using the chained Laspeyres methodology to provide continuity to the series. “In this way, users can continue to interpret the variations as they do currently,” stated the Institute.

Falling prices for agricultural products and air transport were the main contributors to inflation in Mexico slowing down, from 5.52 percent in the last half of July to 5.16 percent annually in the first half of August. Despite the slowdown, inflation in Mexico has been above 5 percent for four fortnights, still far from the price stability target of the Bank of Mexico (BdeM) of 3 to 4 percent.

The cost of agricultural products reported a biweekly drop of 1.30 percent and an annual growth of 10.95 percent, still very high. Meanwhile, fruits and vegetables decreased 3.06 percent in the first half of August compared to the previous one, leading to an annual increase of 15.89 percent.

The prices of low-octane gasoline and electricity were the generic products that had the greatest impact on the inflation rate, with increases of 0.46 and 1.90 percent fortnightly, respectively.

Meanwhile, the rise in university (1.51 percent) and high school (2.02 percent) prices were other factors that contributed to the rise in consumer prices. Lunchrooms, restaurants, sandwich shops and taco stands are reluctant to sell the products that most affect inflation.

Greater moderation

According to the survey of expectations, prepared by Citibanamex among 36 financial institutions, inflation was expected to remain at 5.33 percent annually for the first half of August, compared to the 5.52 percent annually recorded in the two previous weeks. Thus, respondents estimated that in the first half of August, the INPC increased 0.13 percent biweekly. In other words, the official data was surprising because it was lower than projected.

Core inflation, which determines the trajectory of general inflation in the medium and long term, increased by 0.10 percent on a monthly basis to reach 3.98 percent on an annual basis.

Within this index, merchandise showed a biweekly increase of 0.14 percent and an annual rate of 3.07 percent, while the cost of services increased 0.07 percent in the first half of August and stood at 5.11 percent at an annual rate.

Meanwhile, the non-core price index, which includes volatile prices, showed a decrease of 0.46 percent in the first 15 days of August and an increase of 8.80 percent at an annual rate.

The rapid change in the use of technology, the coexistence of people with their pets, as well as the new consumption patterns after the Covid-19 pandemic, were sufficient reasons for Inegi to update the list of expenses used to measure inflation in Mexico.

Mexico City. The Bank of Mexico (BdeM) expects that the country’s inflationary environment could allow for discussions of adjustments to the reference interest rate, according to the minutes of the entity’s August monetary policy decision on Thursday.

The BdeM cut its benchmark interest rate by 25 basis points to 10.75 percent in a split decision by its board announced on Aug. 8.

Two members of the five-person governing board of the Bank of Mexico called the August cut in the benchmark interest rate premature and said it could undermine the bank’s credibility, the minutes showed.

According to the data, the Council acknowledged that although the inflation outlook continues to call for a restrictive stance of monetary policy, its evolution implies that a reduction in the level of monetary restriction is appropriate.

Deputy Governors Jonathan Heath and Irene Espinosa, however, voted to keep the rate stable at 11.00 percent, while Governor Victoria Rodriguez and Deputy Governors Galia Borja and Omar Mejia voted to cut the rate by a quarter of a percentage point.

“Given the circumstances and risks described, a cut in the reference rate would undermine the credibility of this central institution in its commitment to the constitutional mandate of maintaining price stability,” Espinosa wrote in his dissenting opinion, published in the minutes.

Consumer prices fell 0.03 percent in the first half of August, according to data published Thursday by the National Institute of Statistics and Geography (Inegi), compared to expectations of a 0.12 percent increase predicted by economists.

This brought the annual headline inflation rate to 5.16 percent, still above the central bank’s target range (2-4 percent).

Mexico City. The high interest rates prevailing in the bank credit market and the economic situation in general are the main limitations for companies in the country not to request new financing from these credit institutions, according to an analysis by the Bank of Mexico (BdeM).

According to the Evolution of Financing for Companies during the Second Quarter, six out of 10 companies in the country used loans offered by their suppliers, 27.7 percent used credit from commercial banks, 12.1 percent used financing from other companies in the corporate group or from the head office, 2.1 percent leveraged themselves through foreign banks, 1.3 percent through foreign banks, and 0.2 percent through the issuance of debt in financial markets.

According to the central bank, during the quarter, the percentage of companies that used new bank loans was 12.5 percent, down from 16.7 percent reported in the previous quarter.

Of the remaining firms that did not use new credits, 83.5 percent revealed that they did not request them, 3.3 percent said that they did request a loan and are in the process of obtaining authorization, 0.5 percent indicated that they requested one and were not authorized, and 0.2 percent specified that although they requested financing, they rejected it because they considered it to be “too expensive.”

The BdeM pointed out that the limitations indicated by companies for acquiring new credit are, in order of importance, the interest rates of the credit market, the general economic situation, the amounts required as collateral, as well as the sales and profitability of the company.

They also highlighted the conditions for accessing bank credit, the willingness of banks to grant a loan, the capitalization of the company, access to public support, the credit history of the company and the difficulties in servicing the bank debt they already have.

According to data from the central bank, at the end of the first half of the year, the outstanding credit portfolio that commercial banks grant to banks reached 3 trillion 316 thousand 794 million pesos, which implied an annual increase of 12.3 percent in nominal terms. This portfolio represents 52 percent of the total outstanding portfolio of the banks.

Mexico City. The value of construction companies’ production increased by 3.9 percent in June compared to May, a result that translated into three consecutive months of growth, the National Institute of Statistics and Geography (INEGI) reported on Friday.

The annual rate variation of the National Survey of Construction Companies (ENEC) showed a fall of 2.3 percent.

The monthly figure for June added the third consecutive growth, after reaching its lowest level so far this year in April, however the figure for the sixth month was in a similar position to that observed in May 2023.

After December of last year, the measurement began to observe a downward trend, so it has not shown the dynamism reported in 2023.

In June 2024, 58.5 percent of the value of production in this sector was contracted by the private sector, while 41.5 percent by the public sector.

By subsector, the government contracted 87.1 percent of the construction of civil engineering works, while private companies accounted for 64.3 percent of the construction.

By specific type, the public sector contracted 49.2 percent of the transportation and urbanization works. In particular, railway works, which are related to the Mayan Train, stood out with 28.5 percent, while 16.8 percent corresponds to highways, roads and bridges.

The works for the Olmeca refinery of Petróleos Mexicanos (Pemex) still showed momentum, as the public sector contracted 23.0 percent of the value of construction in refineries and oil plants. It should be noted that in the seventh month the works would already be complete, as the new plant of the state company began to operate.

For this reason, the flagship projects of President Andrés Manuel López Obrador continue to accelerate this industry that has an impact on 185 of the 262 branches of the Mexican economy.

Another fact that shows the above is that in Quintana Roo, where the last sections of the Mayan Train are being built, 11.6 percent of the construction value was contracted, placing it in first place in June 2024.

The number of workers employed in this industry fell 0.6 percent in June compared to May, while the annual rate rose 2.9 percent.

Hours worked decreased by 1.8 percent monthly in the sixth month, while compared to June 2023 this component showed a delay of 0.3 percent.

Average real wages fell 3.3 percent in the reference period compared to May. At an annual rate, they rose 7.8 percent.