“We can move in lockstep with the Fed for a while, as we have in the last two decisions, for example, but that’s not necessarily going to happen in the future for one reason: We started before the Fed.” Esquivel told Bloomberg News in an interview and pointed out that Mexico is closer than the United States to its neutral rate, the level that neither speeds up nor slows down the economy.
“The Fed is facing a very tight labor market, but that is not the situation in Mexico,” he added. “In the United States, they face excess demand in certain markets; that is not the case in Mexico.”
When one of Banxico’s five board members voted in favor of a 75 basis point hike last week, the bank said it could consider “stronger measures” if needed to hit its 3% inflation target, plus or minus one percentage point. Inflation reached 7.68% in April, its highest level since January 2001.
The forward guidance was an effort to anchor inflation expectations by indicating that if prices don’t move as expected, “we will be open and willing to move a little faster,” Esquivel said. “That doesn’t necessarily mean it’s going to happen, that just means it’s up for discussion.”
Esquivel, 56, has consistently been the youngest member dovish of the board, dissenting from the majority during all but the last two decisions in the current cycle. If the board were to vote for a 75 basis point increase, it would be the biggest since the bank adopted an overnight rate to target inflation in 2008.
The former economics professor said that he supports President Andrés Manuel López Obrador’s effort to deal with inflation through a price pact with the main companies on the most popular goods in the Mexican basket, which are mainly food that constitutes the largest part of the spending of the poorest Mexicans.
The slowdown in food price increases “could help mitigate not only the complications of these inflationary pressures, but also mitigate future wage demands, wage increases,” which have a significant impact on inflation, Esquivel said. He would be “more than happy” if the plan cut 100 basis points off inflation, he added.