Upward risks are particularly substantial in view of the relatively short time inflation has remained anchored on the target. The biggest menace may come from further peso weakness, which could result in greater pass-through and misalignment of inflation expectations. Another risk could emerge in aggregate demand pressure, as total absorption has increased.
Agricultural price rises may also pick up, reverting to the medium-term average, carrying second-round price effects. Thus, monetary policy must avoid complacency, remaining on watch to consolidate inflation convergence. Results, although recently positive, include no guarantee for the future. In addition, exchange rate considerations have to be viewed from the perspective of the Bank of Mexico’s price stability mandate.