The Mexican peso is trading relatively flat against many of its currency rivals on Tuesday, with inflation coming into focus for the Latin American economy. The peso has weakened this year as the coronavirus pandemic and inflation negatively affect the second-largest market in the nation. As the government continues to impose interventionist mechanisms, can the peso find some momentum?
Mexico’s annual inflation rate eased to its slowest pace since March, coming in at 5.58% year-over-year in August. This is lower than the median estimate of 5.74%. Within the government data, fruits and vegetables surged 2.3%, domestic gasoline declined 15.06%, and peppers and avocados increasing 26.78% and 8.98%, respectively.
On a month-over-month basis, the mid-month consumer price index (CPI) dipped 0.02%, lower than the market forecast of 0.13%. The mid-month core inflation rate, which excludes the volatile sectors of energy and food, rose 0.28%, higher than the consensus of 0.2%.
This comes after the government reported that retail sales tumbled 0.6% in June. Retail sales also eased on an annualized rate, rising 17.7% in June, down from 29.7% in May.
Earlier this summer, President Andres Manuel Lopez Obrador (AMLO) imposed price controls on a broad array of goods and services amid soaring costs. Financial experts are already sounding the alarm that this will lead to significant economic harm.
“It’s not a good idea to have price controls, because we’re talking about a mode of intervention that distorts the prices in the market,” Citibanamex chief economist Adrian de la Garza said in an interview with Bloomberg. “It can lead, for example, to the creation of black markets.”
Meanwhile, Banxico, the nation’s central bank, increased its benchmark interest rate for the second consecutive meeting earlier this month. Its key rate now stands at 4.5%. The next meeting will take place on September 30, where it is widely expected that rates will hold steady.
Central bank Governor Alejandro Diaz de Leon will submit his letter of resignation at the end of his term in December, and Lopez Obrador has nominated former Finance Minister Arturo Herrera to replace him.
The USD/MXN currency pair dipped 0.02% to 20.2965, from an opening of 20.3172, at 14:38 GMT on Tuesday. The EUR/MXN fell 0.09% to 23.8322, from an opening of 23.8676.