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Inflation drops further but Central
Bank’s target seen overly ambitious
The economic slowdown also helped to further rein in
inflation. In November, consumer prices increased 0.38%, which remained
below the average monthly increase of the past twelve months. Price hikes
were driven by electricity, housing and fuels, which was partially
compensated for by lower prices for some food items.
As a result of the subdued price movements, annual
headline inflation dropped from 5.9% in October to 5.4% in November, the
lowest rate since 1972. Core inflation has even dropped below the 5%
threshold, which should boost the boost the Central Bank’s credibility to
deliver on its ambitious objective of lowering inflation to 3% by the end
of 2003, reiterated in its September briefing on monetary policy.
Panellists have maintained their forecasts for this
year. However, the Consensus remains skeptical about the Central Bank’s
ability to make further meaningful inroads in reducing inflation. The
short-term 4.5% target for 2002 and the official 2003 target are seen to
be overshot.
External balances stable but Banamex-related
inflows are countered by capital outlows
In the third
quarter, the current account deficit reached US$ 3.2 billion, below the
US$ 3.5 billion registered in the second quarter and also short of the
deficit in the same quarter last year. A small improvement in the trade
balance brought about the lower deficit, as the level of imports adjusted
quickly to lower demand.
The capital
account surplus was more than sufficient to cover the current account
gap. However, the US$ 3.5 billion surplus remained below the second
quarter surplus, despite the massive capital inflows in the wake of the
US$ Citigroup-Banamex purchase. The weakening can be attributed to
massive reductions in Mexican assets abroad.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Mexico. For more details please click here.
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