La Jornada: Risk of a greater than expected increase in food

The Governing Board of the Bank of Mexico (BdeM) warned that the interruption of maritime routes due to the conflict in the Middle East and the possible increase in transportation costs could translate into higher than expected increases in food prices, in addition to pressures on the costs of goods and services.

This forecast appears in the minutes of the monetary policy meeting held on May 6 and published yesterday.

The document indicates that energy and fertilizer prices reached their highest level since 2022 and the corn and wheat futures markets anticipate increases in the coming months.

One of the members of the board (the minutes do not identify them by name) specified that nitrogen fertilizers, the most used in the country, are among the inputs most exposed to geopolitical shocks, although agricultural calendars indicate that a possible impact on inflation would not be observed in the short term.

Despite these warnings, the majority of the board agreed that the effects of the conflict in Mexico have been limited, due in part to fuel tax subsidies. One of the members recalled that Mexico’s access to American natural gas places the country in a relatively favorable position compared to economies in Asia and Europe.

Due to the above and the weakness of economic activity, the absence of demand pressures and the exchange rate, the board decided by majority two weeks ago to reduce the overnight interbank interest rate by a quarter of a basis point, to 6.5 percent, and declared the cycle of cuts that began in March 2024 concluded.

Victoria Rodríguez Ceja, José Gabriel Cuadra García and Omar Mejía Castelazo voted in favor. Galia Borja Gómez and Jonathan Heath Constable spoke out against it.

Borja Gómez argued that the accumulation of supply shocks during the year, added to the conflict in the Middle East, has generated a more complex environment for price formation, and that the persistence of services inflation and the unfavorable base effects expected for the second half of the year would lead to a slow reduction towards the 3 percent goal.

For his part, Heath Constable noted that the neutral monetary stance already achieved, the narrow margin for additional reductions in external rates and the high uncertainty justified a pause that, in his opinion, “should be prolonged in nature.”

In terms of economic activity, the minutes record that Mexico’s GDP contracted 0.77 percent in quarterly terms during the first quarter of 2026, a figure that most members described as clearly higher than anticipated. In annual comparison, the growth was just 0.1 percent.

They highlighted that the three major sectors of the economy fell, and manufacturing accumulated nine consecutive months of annual declines. The growth forecast for 2026 is 1.6 percent, although the board acknowledged that it could go down.