Mexico moves forward in reforms

Inflation moderated again in December, standing at 3.6%, far below November’s figure of 4.2% and within Banxico’s target range (of 3% ±1%) for the first time since May 2012. Within this context, it was no surprise that the central bank decided to keep the official interest rate unchanged, at 4.5% since mid-2009. What did come as a surprise was the more adaptable message conveyed by its communication. Consequently, within a scenario where inflation remains under control and growth is slowing up slightly, the monetary authority’s announcement reaffirms the signs of monetary containment in 2013.

What is not on pause is the ambitious reform plan agreed in the Pact for Mexico, signed by all the country’s main political parties. Proposals are already underway in the area of energy and the Democratic Revolution Party (PRD) has already presented a plan advising against opening up Pemex, the state petrol company, to private capital, at least in certain operational areas. The reform does favour, however, modifications in the current price and subsidy system in order to better reflect the real cost of energy.

Regarding labour reform (which aims to make the market more flexible) and educational reform (which, among other things, eliminates the habitual practice of inheriting or even selling a teaching post), both approved at the end of 2012, the government has already come up against the first conflicts with the powerful National Education Workers’ Union (SNTE). Although all political forces are interested in coming to an agreement, we will see what remains of President Enrique Peña Nieto’s ambitious reform plans once they have passed through the filter of political and social consensus.

Lastly, and given this situation of moderating inflation and reformist plans, some business indicators confirm the strength of domestic demand, in particular of consumption. The consumer confidence index rose in December and continued its positive trend, indicating both the resistance of this domestic consumption and a possible upswing throughout 2013. As happened in the third quarter of 2012, consumption will continue to support the country’s growth. This solid demand is very important given the risks still entailed by fiscal uncertainty in the United States, its main trading partner, and the crisis of the euro area.

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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