20180830-法国巴黎银行-Mexico__Banxico_s_Q2_Report_–_look_at_core_inflation___9页_909kb

Summary of Banxico's Q2 Inflation Report

Core Content

Banxico released its Q2 Inflation Report on 29 August, highlighting changes in inflation and GDP forecasts while maintaining a neutral stance on monetary policy. The report underscores a continued downward trend in core inflation and suggests that headline inflation may rise temporarily, but the overall inflation outlook remains balanced.

Key Points

• Banxico's Neutral Tone: Despite an upward revision to headline inflation forecasts, Banxico's overall message remains neutral. The central bank is not signaling a more hawkish approach but is emphasizing the downward trajectory of core inflation.

• Headline Inflation Forecast Revisions:

  • Headline inflation forecasts for Q3 2018 and Q2 2019 were increased by 0.5 percentage points.
  • Revised forecasts for 2018 and 2019 are 4.2% and 3.3%, respectively.

• Core Inflation Trends:

  • Core inflation forecasts were adjusted by only 0.1 percentage points.
  • Convergence to 3.0% is expected by Q3 2019.
  • The report suggests that core inflation is more stable and on a downward path compared to headline inflation.

• GDP Growth Forecast:

  • Banxico lowered its GDP growth forecasts for both 2018 and 2019.
  • The downward revision aligns with the overall neutral tone of the report.

• New Inflation Risks:

  • The report highlights new inflation risks tied to the policies of the incoming AMLO administration.
  • These risks include potential salary revisions and other fiscal measures.
  • The central bank acknowledges that these risks could affect the inflation convergence pattern.

• Policy Outlook:

  • The authors reiterate their view that no further rate hikes are expected in 2018.
  • There is room for rate cuts in 2019, particularly if inflation remains subdued.

Charts and Visuals

• Chart 1: Core inflation forecasts trending down.
• Chart 2: Banxico lowers its GDP growth forecasts.
• Chart 3: Banxico's inflation risks, including those from the new administration.

Overall Inflation Balance

• The report notes that the overall inflation balance still maintains an upward bias.
• However, the downward trend in core inflation is a positive sign, suggesting that inflationary pressures may be transitory.

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Conclusion

Banxico's Q2 Inflation Report indicates a neutral policy stance with a focus on the declining core inflation. While headline inflation is expected to rise slightly, the central bank is not expected to raise interest rates further in 2018. The report also highlights fiscal risks from the new administration, which could influence inflation dynamics in the near future. The authors maintain their view that rate cuts may be necessary in 2019 to support the economy.