The economic weakening will slow down inflation: experts

The weakening of the economy will help slow down inflation: analysts In an economic scenario marked by uncertainty and volatility, analysts have pointed out that the weakening of the Mexican economy could contribute to a slowdown in the inflation rate, despite expectations that volatility in food prices will persist in the short term. According to the most recent data, June's general inflation stood at 4.98%, the highest in the last 12 months, mainly driven by the increase in prices of agricultural products. Despite this increase, analysts believe that an economic slowdown could help contain the inflationary pace in the coming months. One of the aspects that has raised concerns among specialists is the rise in prices of agricultural products, which saw a significant increase from 8.44% in May to 10.36% in June, the highest level since October 2022. However, within the core index, which removes volatile components, a slowdown in service prices is observed, which could be a positive sign in terms of long-term inflation. Paulina Anciola, Deputy Director of Economic Studies at Citibanamex, pointed out that signs of a slowdown in the labor market are already being observed, which could translate into a reduction in wage pressures and lower consumer spending, positively impacting service inflation. On the other hand, Carlos Capistrán, Chief Economist for Latam and Canada at Bank of America, warned that inflation will continue to face pressures from agricultural product prices for the remainder of the year, in addition to the possible depreciation of the Mexican peso in the following months. Regarding formal employment, a decrease in job creation has been observed, which could contribute to lower wage pressures and, as a result, a reduction in consumption and inflation in services. In the first six months of the year, 295,058 formal jobs have been created, according to data from the Mexican Social Security Institute (IMSS). Expectations of interest rate cuts by the Bank of Mexico (Banxico) have also sparked debate among analysts. Despite the recent rise in inflation, interest rate cuts are expected at the next August meeting, although there is no consensus within the Governing Board. Some members, such as Jonathan Heath and Irene Espinosa, have expressed more cautious positions regarding rate reductions. In summary, the current economic outlook presents significant challenges in terms of inflation and growth, but the economic slowdown could play a key role in containing inflation in the coming months. The evolution of variables such as employment, food prices, and monetary policy will be crucial in determining the direction the Mexican economy will take in the short and medium term.