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JPMorgan Following Banxico’s Quarterly Report

MEXICO
  • JPMorgan believe the updated inflation framework confirms two important things. First, that the peak of inflation was reached in 3Q22 and second, that the way down will be painful given demand-side pressures, an aggressive min-wage policy, and sticky inflation expectations. This is consistent with the central bank ending (or maybe pausing?) its hiking cycle in February, but remaining there until early 2024.
  • JPM believe a pre-condition for Banxico to think about easing policy toward a more neutral level is first witnessing an important downshift in sequential core inflation, and, more importantly, seeing the downshift feed into lower inflation expectations. They don’t see any of these happening to a significant extent soon, explaining their call for Banxico to keep the policy rate at 10.75% through year-end 2023, contrary to market expectations for easing to begin in 2H23.
  • All eyes next week will be on the November inflation report which is expected to reflect the Black Friday discounts and the ongoing energy subsidies—the silver lining in the anti-inflation PACIC plan from the government.
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