Deputy Governor Galia Borja of the Bank of Mexico (BdeM) stated that the segment with the greatest resistance to downward inflation is prices of services. This segment has not shown a clear downward trend for some time. Borja explained that one factor influencing the increase in service costs could be the rise in minimum wages. After the COVID-19 pandemic, national goods have had the most impact on inflation.
Despite other items experiencing decreases, such as food, services have remained around an annual variation of 5 percent for 21 consecutive months. Tuition fees and automobile insurance are among the services that have seen significant increases recently. The increases in services contrast with decreases in other important items, like food. Borja highlighted that climate change could lead to further price increases due to reduced production of basic foods. In April, inflation stood at 4.65 percent, with services at 5.21 percent annual variation.
The BdeM governing board decided to maintain the reference interest rate at 11 percent due to greater inflationary pressures. Borja emphasized that persistent high prices of services pose a significant risk factor and that climate change could exacerbate inflation. The federal government has promoted increases in the minimum wage, which has been a reference point. Borja believes that this increase in wages may be fueling the persistence of higher prices in services, especially since it has led to an increase in tuition fees and automobile insurance premiums.
In conclusion, Deputy Governor Galia Borja stated that prices of services are still resisting downward inflation despite efforts by other items like food seeing decreases for some time now.
According to her, one possible reason for this is an increase in minimum wages after COVID-19 pandemic which could be fueling service price increases.
Climate change is another potential risk factor as it may affect production rates and lead to further price hikes.
It’s worth noting that although food has seen decreases recently, it’s still contributing significantly to inflationary pressures.
The BdeM governing board maintains a reference interest rate of 11% due to these pressures while highlighting persistent high prices as a significant risk factor.
