Without a gasoline subsidy, the price would have reached 35 pesos per liter; but it has its downside: Heath

Without the gasoline subsidy that was applied in Mexico, the price would have reached 35 pesos per liter and this in turn would have fueled a large number of price increases, estimated the Deputy Governor of the Bank of Mexico, Jonathan Heath.

However, he stressed that it has its downside. Since it works to avoid rises but also falls, now that the energetics start to go down, the cost of us will not come down as in other countries, he warned.

In a brief press conference after being awarded the prize “Character of the Year” of Fortuna Magazine, explained that “this could contribute to the persistence of inflation and will make it difficult to eradicate inflation”

“It helped us contain the rise but it’s not going to help us that much now that we need it to come down, ”he admitted.

The central banker stressed that the origin of inflation is global. This is different from saying it’s imported inflation, she noted. Because Mexico is part of the global economy and we are part of the same process.

In order to eradicate this inflationary outbreak in the country, we need to solve the problem of origin, which is global. The first thing we have to begin to observe is a drop in the world indicators of commodities, of energy. Of food. Of the costs of maritime transport. “When these drop and with a lag that hopefully will not be very long, inflation in Mexico may also begin to decrease,” he considered.

And it is for that moment that the Bank of Mexico is now adjusting the monetary position; so that it is coherent and consistent, so that once global pressures drop, it can be accompanied to ensure that it (inflation) will drop.

The global part is a necessary but not sufficient condition. And the monetary policy that we are going to implement by itself is not going to solve the problem either, but it can help to solve it.

Nearer the terminal rate

The Deputy Governor reiterated his confidence that Banco de México is already approaching its terminal rate.

In the November decision we considered that we still had to continue raising the rate, but we can now begin to slow the pace of the increases. That pressing need for the last four 75-point increases is no longer there because we are already getting closer to what I think our terminal rate could be.

Or I know exactly what that terminal rate is. It will depend on the evolution of the data. We cannot define it as is. But that it is closer to where it was, we can already say that.

Tighter Fed, good news

The fact that the Fed is applying an increasingly tight monetary stance gives us some faith that sooner or later inflation in the United States will start to subside. We need all of this to happen before it starts to subside in Mexico as well, he said. “We believe that there is light at the end of the tunnel. We hope it is not a train that is going to run over us. We believe that the good news is starting to spread, but we must be patient so that it really is the beginning of a new downward trajectory in inflation. We still don’t have the evidence but we believe that it will happen.”