Falling inflation in August may spur another rate cut

Inflation in Mexico registered a decrease in August, reaching 4.99% at an annual rate, which opens the possibility that the Bank of Mexico (Banxico) will make a new interest rate cut at its next monetary policy meeting.

Inflation in Mexico eased in August, reaching an annual rate of 4.99%, which has generated expectations of a possible further interest rate cut by the Bank of Mexico (Banxico) at its next meeting. 

This level of inflation is lower than the 5.57% registered in July, marking a turnaround after five months of consecutive increases. Analysts had anticipated inflation of 5.06%, so the final result exceeded projections, reinforcing confidence that Banxico could opt for a looser monetary policy. Last month, Banxico surprised the market with a 25 basis point cut, and is now expected to repeat this action on September 26.

The decline in headline inflation is due, in part, to the moderation of the non-core component, which includes goods with more volatile prices such as food and energy. This index declined to 8.03% from 10.36% in July. 

Core inflation, which excludes these goods, also showed a slight decrease to 4.00%, driven by increases in services such as education and mobile telephony. 

These movements suggest that inflationary pressures are beginning to dissipate, opening the door to an adjustment in monetary policy. However, important challenges remain in sectors such as agriculture, where prices have experienced significant fluctuations due to supply factors.

For the Mexican market, this slowdown in inflation represents a strength, as it provides a respite for consumers and companies in terms of price stability. 

At the same time, a further rate cut by Banxico could reduce financial costs, boosting both consumption and investment in various sectors of the economy. However, companies should consider that there are still risks related to price volatility in key sectors, such as energy and agriculture. These segments have shown erratic behavior in recent months, which could generate instability in production costs and affect the supply chain.

Price moderation also presents an opportunity for productive sectors, especially those that depend on short-term financing. A lower interest rate environment could facilitate access to credit, which in turn would boost investment projects in areas such as construction, manufacturing and services.

However, low economic growth could limit the capacity for expansion in some sectors, while the depreciation of the peso could offset the benefits of lower interest rates.

At the same time, it is necessary to consider some structural weaknesses in the Mexican economy. Despite the moderation in inflation, the decline in producer prices in the agricultural sector reflects a continued vulnerability to external shocks, such as adverse weather conditions or fluctuations in international food prices. These weaknesses in agricultural supply could increase uncertainty for companies that depend on these products, affecting the stability of their operations and increasing costs in the medium term.

The threats to the Mexican market are not limited to domestic factors. Internationally, trade tensions and oil price volatility continue to be critical factors that could affect the economy. In addition, the risk of a depreciation of the peso against the dollar could further complicate the outlook for companies that depend on imports or exports, as they could see their operating costs increase or their profit margins shrink.

In summary, although inflation has shown signs of moderation and opens the door to a rate cut by Banxico, the macroeconomic environment continues to present challenges.

Companies must be prepared to take advantage of the opportunities offered by a scenario of lower financial costs, but without losing sight of the risks associated with volatility in key sectors. Banxico's decisions in September will be crucial in defining the direction of the economy in the coming months, and their impact will be profound in sectors such as finance, agriculture and energy.

Moderate growth expectations, coupled with persistent volatility in certain markets, suggest that the Mexican economy continues to face a complex and challenging environment.

Collaboration: Editorial Auge.