Below the target: Inflation in northern Mexico
Inflation in northern Mexico appears to be under control, with figures below the Bank of Mexico’s estimate.
Additionally, in the southern border states, the behavior was similar, indicating that the cost of living is higher than in the central part of the country.
During October, Nuevo León, Baja California, Coahuila, Sonora, Chihuahua, and Tamaulipas remained within the Bank of Mexico’s target.
It is evident that inflation in northern Mexico aligns with the economic expectations of the government, amidst an interesting nearshoring movement.
While the appreciation of the peso against the dollar is an ally in slowing down inflation in the country, the strength of the national currency this year has benefited the northern border states more.
Inflation in northern Mexico: Under Control
For some, inflation in northern Mexico is closely related to states near the United States. In this regard, border economies “dollarize,” making them more susceptible to exchange rate behavior.
According to data from the National Institute of Statistics and Geography (Inegi), of the 32 entities in the country, only nine recorded an annual inflation within the Bank of Mexico’s target (2-4 percent) in October.
Among these states are the six northern states of Mexico: Nuevo León (3.56%), Baja California (3.70%), Coahuila (3.70%), Sonora (3.82%), Chihuahua (3.96%), and Tamaulipas (3.98 percent).
The appearance of the phenomenon known as “apredeflation” (peso appreciation and inflation decline) in border cities is currently present due to the growing appreciation of the Mexican peso to minimum levels and the price reduction in recent months, uninterrupted, with deflation in energy, according to Jorge Lera, a researcher at the Autonomous University of Tamaulipas.
Another aspect explaining inflation in northern Mexico is that the average exchange rate in the northern border is lower than the rest of the country, meaning the dollar is cheaper because national dollarization is delayed, hovering around 17.20 pesos (compared to 18.08 pesos in October FIX, with an annual appreciation of 9.5 percent).
This improves the purchasing power of Mexicans living on the border when buying in the United States, as they get more dollars for fewer pesos, “since the southern states of the United States are mirror markets.“
The other entities that met the central bank’s target during October were the State of Mexico (3.33%), Mexico City (3.83%), and Baja California Sur (3.88 percent).
On the other hand, some entities in the southern-southeastern region of the country registered high inflation levels, with Yucatán having the highest annual rate in the country (6.24% in October).
Also read: For JPMorgan: Mexico Tops the Investment Opportunities List.
