Mid-November Inflation Will Shape Banxico's Next Decision

• Fitch Solutions will be paying close attention to the mid-November inflation print from Mexico, which is forecasted to have a significant impact on the next policy rate decision by the Banco de México (Banxico).
• October’s inflation data suggests that price growth in Mexico has peaked; it showed a deceleration from 8.7% y-o-y in September – itself flat with August – to 8.4%, in line with the view that inflation will begin to cool by the end of the year.
• The Agency argued that Banxico would slow the pace of its rate hiking cycle from 75 bps to 50bps at its next meeting on December 15, due in part to cooling inflationary pressure. However, if inflation comes in line with consensus expectations at 8.3% in the first half of November, it would reinforce Fitch’s view that Banxico will moderate its hiking in December.
• On the contrary, if inflation surprises to the upside, either at the headline or the core (8.4% in October), this would pose a risk to its view that the overnight policy rate will end the year at 10.50%, and that inflation will stand at 8.4% at end-2022.
• Notably, the preliminary print showed the economy grew 4.2% y-o-y in Q3 2022, which led to the Agency revising its forecast for the year from 2.0% to 2.7%. While the finalised print may shift the Q3 2022 number slightly, the changes are typically minor, and should not affect the annual forecast.

(Source: Fitch Solutions)