Research Briefing | May 11, 2021

Inflation dynamics have Mexico set to hike rates next

Inflation dynamics have Mexico set to hike rates next - iPad

Our thorough analysis of inflation risks shows that Mexico should be the first to join Brazil in the rate-hiking club in 2021. With three in four items in the CPI basket seeing above-target price rises and US long-term rates climbing, we think Banxico will be compelled to raise rates before year-end.

What you will learn:

  • Outside Brazil and Mexico, the inflation outlook looks quite benign, so we think rate hikes are more of a 2022 story in Chile, Peru, and Colombia.
  • However, on-target inflation is no guarantee that central banks will stand pat. In Colombia, if the rise in long-term bond yields and currency weakness are not reversed soon, BanRep may be forced to hike rates even though inflation is below the lower bound of the target range and expectations are well-anchored.
  • We also note that consensus expectations are typically a poor guide for future price dynamics, so central banks respond to both observed and expected inflation. 

Back to Resource Hub

Related Services

Post

Slowdown in 2023, except for Chinese cities

Growth across advanced Asia Pacific cities is slowing down in 2022's second half, and their full-year growth rates will trend downwards in 2023. In emerging Asian cities, we expect an uptick in growth in 2022, followed by a marked weakening in 2023.

Find Out More

Post

European cities face a tough winter as recession spreads

Strong annual GDP growth figures for most major European cities do not tell the whole story in 2022 as the economic environment across Europe has continued to deteriorate in the second half of this year. We expect technical recessions across most major European cities in H2 2022 and into Q1 2023.

Find Out More