Mexico Annual Inflation at 21-Year High, More Rate Hikes Expected

• Mexican consumer prices rose in March to levels not seen since early 2001, and economists are saying the data suggests more interest rate hikes are likely, as the central bank has noted that the risks to inflation are skewed to the upside. 
• Citing tightening global monetary and financial conditions, as well as uncertainty and inflationary pressures linked to the war in Ukraine, the Mexican Central Bank (Banxico) raised its benchmark interest rate by 50 basis points last month, making it the seventh straight hike. 
• The government's INEGI statistics agency reported that consumer price inflation rose 7.45% in the year through March, way more than the central bank's target of 3%, with a one-percentage-point tolerance range above and below that. Notably, the CPI was also above the median forecast of analysts surveyed by Reuters (7.36% in March, versus 7.28% in February). 
• Consequently, most central bank committee members stated that the balance of risks for the trajectory of inflation over the forecast horizon has deteriorated again and remains biased to the upside.  Upside risks to inflation include: the persistence of core inflation at high levels, external inflationary pressures associated with the COVID-19 pandemic, increases in agricultural and livestock product prices and energy prices due to the recent geopolitical conflict, and cost-related pressures. 
• Nikhil Sanghani, Latin America economist at Capital Economics has indicated that persistent inflation risks, alongside the more hawkish U.S. Fed, will put pressure on Banxico to continue tightening over the coming months. It is forecasted that there will be another 50-basis-point rate hike at the bank's next monetary policy meeting scheduled for May 12 and at least a further 150 basis points of tightening in this cycle to 8.50%.

(Source: Reuters)