MNI INTERVIEW2 -Banxico Optimistic On Non-Core Inflation-Heath
MNI (BRASILIA) - The divergence between market forecasts and those made by the Central Bank of Mexico has been driven by differences over non-core inflation and services inflation, with Banxico more optimistic in both cases, Deputy Governor Jonathan Heath told MNI.
"Market forecasts anticipate two things. First, that non-core inflation will remain highly volatile due to shocks that we do not currently foresee," Heath said in emailed replies to questions earlier this week, adding that Banxico believes a restrictive monetary stance will bring core inflation closer to 3%.
There is also a difference over services prices, he said.
"As core inflation remains on its downward path, service prices must decrease more than the expected increase in goods prices. The market does not believe this will happen," he said. "The market thinks otherwise. We’ll see who is right."
Weak activity should help ease inflationary pressure, Heath said.
"Lowering rates because we are concerned about economic activity is very different from lowering rates because the economic slowdown is helping inflation continue to decline. Some analysts believe our reasoning is the first one, but that is not the case," he said.
"Our priority is price stability, and we are convinced that this is the best contribution monetary policy can make to fostering an environment conducive to economic growth and development."
The appointment of Jose Gabriel Cuadra Garcia as deputy governor, replacing Irene Espinosa, who completed her term at the end of last year, will strengthen the board, he said.
"He is a highly knowledgeable and experienced professional in monetary policy implementation, and we anticipate that his contributions to the board’s work will be extremely positive.”