Inflation Report...Emerging Economies: GDP Growth Forecasts for 2012 (%) Source: Blue Chip. Source: Blue Chip. -1.0-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 1 11 11 11 11 1 11 11 11 1 1

February, 2012

Inflation Report October-December 2011

1. External Conditions

2. Economic Activity in Mexico

3. Monetary Policy and Inflation

Determinants

4. Forecasts and Balance of Risks

Outline


The world economic outlook has deteriorated as a result of the problems in Europe.

Recent stability factors in Europe:

Adoption of unconventional measures by the European Central Bank.

Progress in plans to address the fiscal problems.

Inflationary pressures have diminished as a result of the reduced dynamism of global economic activity.

An accommodative monetary policy stance in the majority of the economies is anticipated.

3 Inflation Report

October-December 2011


Emerging Economies: GDP Growth Forecasts for 2012

(%)

Source: Blue Chip. Source: Blue Chip.

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jan

-11

Feb

-11

Mar

-11

Ap

r-1

1

May

-11

Jun

-11

Jul-

11

Au

g-1

1

Sep

-11

Oct

-11

No

v-1

1

Dec

-11

Jan

-12

Feb

-12

U.S.

Euro Zone

Japan

0

1

2

3

4

5

6

7

8

9

10

Jan

-11

Feb

-11

Mar

-11

Ap

r-1

1

May

-11

Jun

-11

Jul-

11

Au

g-1

1

Sep

-11

Oct

-11

No

v-1

1

Dec

-11

Jan

-12

Feb

-12

Brazil China

India Mexico

Russia



4

Advanced Economies: GDP Growth Forecasts for 2012

(%)

1. External Conditions U.S.: Public Balance 1/

(% of GDP)

60

80

100

120

140

160

180

200

80

90

100

110

120

130

140

I 199

0

IV 1

99

2

III 1

995

II 1

99

8

I 200

1

IV 2

00

3

III 2

006

II 2

00

9

Households'debt

Case-Shiller(left axis)

III 2

01

1

s.a./ Seasonally adjusted. Source: Federal Reserve and S&P.

U.S.: Households’ Debt and Housing Prices

(% of personal disposable income and index 2000=100; s.a.)

U.S.: Unemployment Rate and Employment-Population Ratio

(%)

54

56

58

60

62

64

66

0

2

4

6

8

10

12

Jan

-00

May

-01

Sep

-02

Jan

-04

May

-05

Sep

-06

Jan

-08

May

-09

Sep

-10

Jan

-12

Unemployment rate

Employment-populationratio (left axis)

Source: Bureau of Labor Statistics (BLS).

-12

-10

-8

-6

-4

-2

0

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

1/ CBO’s baseline scenario. Source: Congressional Budget Office (CBO).

Forecast


5

1. External Conditions Euro Zone:

Industrial Production (Index Jan-2007=100; s.a.)

-90

-70

-50

-30

-10

10

30

50

Jan

-07

Jun

-07

No

v-0

7

Ap

r-0

8

Sep

-08

Feb

-09

Jul-

09

Dec

-09

May

-10

Oct

-10

Mar

-11

Au

g-1

1

Jan

-12

Euro Zone Greece Italy

Portugal Spain Germany

France

Euro Zone: Consumer Confidence

(Diffusion index; s.a.)

s.a./ Seasonally adjusted. Source: Eurostat.

s.a./ Seasonally adjusted. Source: European Commission.

Dec

-11


6

60

70

80

90

100

110

120

130

Jan

-07

Jun

-07

No

v-0

7

Ap

r-0

8

Sep

-08

Feb

-09

Jul-

09

Dec

-09

May

-10

Oct

-10

Mar

-11

Au

g-1

1

Euro Zone Greece Italy

Portugal Spain Germany

France

Forecast Forecast

Selected Economies: Fiscal Balance 2/

(% of GDP)


2/ Spain, United States, France and Italy data from Fiscal Monitor, January 2012. Ireland, Greece and Portugal data from Fiscal Monitor, September 2011. 3/ Public Balance without Pemex investment. Source: Fiscal Monitor (IMF) and Mexico’s Ministry of Finance (SHCP).

-35

-30

-25

-20

-15

-10

-5

0

5

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Spain

U.S.

France

Ireland

Italy

Greece

Mexico 3/

Portugal0

20

40

60

80

100

120

140

160

180

200

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

Spain U.S.

France Ireland

Italy Greece

Mexico Portugal

Selected Economies: Public Debt 1/

(% of GDP)

1/ Spain, United States, France and Italy data from Fiscal Monitor, January 2012. Ireland, Greece and Portugal data from Fiscal Monitor, September 2011. Source: Fiscal Monitor (IMF) and Mexico’s Ministry of Finance (SHCP).


7

0

50

100

150

200

250

300

350

400

Jan

-07

Au

g-0

7

Mar

-08

Oct

-08

May

-09

Dec

-09

Jul-

10

Feb

-11

Sep

-11

U.S.

Euro Zone

3-month Libor-OIS and Euribor-EONIA Spread 1/

(Spread in basis points)

300

400

500

600

700

800

900

1,000

Jan

-08

Au

g-0

8

Mar

-09

Oct

-09

May

-10

Dec

-10

Jul-

11

Feb

-12

2/ On December 8, the ECB announced unconventional measures. Source: European Central Bank.

ECB: Lending to Euro Area Credit Institutions Related to Monetary Policy Operations 2/

(Billions of euros)

1/ On December 8, the ECB announced unconventional measures. Source: Bloomberg.


Feb

-12

8-Dec-11 8-Dec-11


8


0

250

500

750

1,000

1,250

1,500

1,750

Jan

-10

Feb

-10

Mar

-10

Ap

r-1

0

May

-10

Jun

-10

Jul-

10

Au

g-1

0

Sep

-10

Oct

-10

No

v-1

0

Dec

-10

Jan

-11

Feb

-11

Mar

-11

Ap

r-1

1

May

-11

Jun

-11

Jul-

11

Au

g-1

1

Sep

-11

Oct

-11

No

v-1

1

Dec

-11

Jan

-12

Feb

-12

Germany

Ireland

Italy

Portugal

Spain

France

Mexico

Credit Default Swaps 1/

(Basis points)

1/ 5-year CDS. On December 8, the ECB announced unconventional measures. Source: Bloomberg.

8-Dec-11


9


80

90

100

110

120

130

140

150

Jan

-08

Jun

-08

No

v-0

8

Ap

r-0

9

Sep

-09

Feb

-10

Jul-

10

Dec

-10

May

-11

Oct

-11

Brazil

Chile

Colombia

Mexico

Emerging Economies: Exchange Rate 1/

(Index 01-Jan-2008=100)

40

60

80

100

120

140

160

180

Jan

-08

Jun

-08

No

v-0

8

Ap

r-0

9

Sep

-09

Feb

-10

Jul-

10

Dec

-10

May

-11

Oct

-11

Brazil

Chile

Colombia

Mexico

Emerging Economies: Stock Exchange 2/

(Index 01-Jan-2008=100)



Depreciation against USD

Feb

-12

Feb

-12


10

8-Dec-11 8-Dec-11


2

3

4

5

6

7

8

9

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Corn

Wheat

50

60

70

80

90

100

110

120

130

140

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

WTI

Brent

Source: International Monetary Fund.

International Price of Commodities

(Index Jan-2002=100)

International Price of Crude Oil

(Dollars per barrel)

International Price of Wheat and Corn (Dollars per bushel)

Source: Bloomberg. Source: U.S. Department of Agriculture (USDA).

0

100

200

300

400

500

600

Jan

-02

No

v-0

2Se

p-0

3Ju

l-0

4M

ay-0

5M

ar-0

6Ja

n-0

7N

ov-

07

Sep

-08

Jul-

09

May

-10

Mar

-11

Jan

-12

Total

Energy

Food


11

1. External Conditions Inflation in 2011 and Inflation Expectations for 2012 1/

(Annual % change)

1/ Blue and red lines show the average inflation for 2011 and 2012, respectively for advanced and emerging economies groups. Source: Central banks, statistics departments and expectations from Consensus Forecasts.

-2

0

2

4

6

8

10

Jap

an

Swit

zerl

and

No

rway

Euro

Zo

ne

Can

ada

Swed

en

U.S

.

Au

stra

lia

N.Z

.

U.K

.

Cze

ch R

ep.

Mal

aysi

a

Isra

el

Co

lom

bia

Thai

lan

d

Mex

ico

Hu

nga

ry

Ko

rea

Po

lan

d

Ch

ile

Per

u

Ph

ilip

pin

es

Sou

th A

fric

a

Ind

on

esia

Ch

ina

Turk

ey

Bra

zil

Ind

ia

2011 2012

1.6

2.5

4.7

4.2


12




Determinants


Outline



70

90

110

130

150

170

190

Jan

-07

Jun

-07

No

v-0

7

Ap

r-0

8

Sep

-08

Feb

-09

Jul-

09

Dec

-09

May

-10

Oct

-10

Mar

-11

Au

g-1

1

Total

U.S.

Others

Manufacturing Exports by Region of Destination

(Index 2007=100; s.a.)

s.a./ Seasonally adjusted and trend data. Source: Banco de México.

Economic Activity Indicators 1/

(Index 2003=100; s.a.)

95

105

115

125

135

145

155

165

175

185

95

100

105

110

115

120

125

130

135

140

Jan

-07

Jun

-07

No

v-0

7

Ap

r-0

8

Sep

-08

Feb

-09

Jul-

09

Dec

-09

May

-10

Oct

-10

Mar

-11

Au

g-1

1

Total IGAE

Industrial production

Services IGAE

Agricultural IGAE (left axis)

s.a./ Seasonally adjusted and trend data. 1/ Industrial production up to December 2011. Total IGAE, services and agricultural data up to November 2011. Source: INEGI.

Dec

-11

Dec

-11


14

2. Economic Activity in Mexico Commercial Establishments’ Sales

(Index 2008=100; s.a.) Investment and its Components

(Index 2005=100; s.a.)

s.a./ Seasonally adjusted and trend data. Source: INEGI.

s.a./ Seasonally adjusted. Source: INEGI.

87

89

91

93

95

97

99

101

103

105

107

Jan

-07

Jun

-07

No

v-0

7

Ap

r-0

8

Sep

-08

Feb

-09

Jul-

09

Dec

-09

May

-10

Oct

-10

Mar

-11

Au

g-1

1

Wholesale

Retail

No

v-1

1

No

v-1

1


15

80

100

120

140

160

180

200

85

95

105

115

125

135

145

Jan

-07

Jun

-07

No

v-0

7

Ap

r-0

8

Sep

-08

Feb

-09

Jul-

09

Dec

-09

May

-10

Oct

-10

Mar

-11

Au

g-1

1

Total

Construction

National machinery and eqpt. (left axis)

Imported machinery and eqpt. (left axis)

16 Inflation Report


2. Economic Activity in Mexico Total Real Wage Bill

(Annual % change)

-8

-6

-4

-2

0

2

4

6

8

10

12

I 200

6

IV 2

00

6

III 2

007

II 2

00

8

I 200

9

IV 2

00

9

III 2

010

II 2

01

1

Real wage bill

Real average income

Paid employed population

Source: Prepared by Banco de México with data from INEGI.

Commercial Banks’ Performing Credit for Consumption

(Real annual % change)

-40

-30

-20

-10

0

10

20

30

40

50

Jan

-08

Au

g-0

8

Mar

-09

Oct

-09

May

-10

Dec

-10

Jul-

11

Total

Credit cards

Durable goods 1/

Payroll and others 2/

Dec

-11

70

75

80

85

90

95

100

105

110

115

Jan

-05

Au

g-0

5

Mar

-06

Oct

-06

May

-07

Dec

-07

Jul-

08

Feb

-09

Sep

-09

Ap

r-1

0

No

v-1

0

Jun

-11

Jan

-12

s.a./ Seasonally adjusted and trend data. Source: INEGI and Banco de México.

1/ Includes credit for the acquisition of property and automobile credits. 2/ Others refers to personal credits, credit for payable leasing operations and other consumption credits. Source: Banco de México.

Consumer Confidence

(Index Jan-2003=100; s.a.)

IV 2

01

1

17 Inflation Report


Producer Confidence (PCI) and Manufacturing Purchasing

Managers (PMI) Indices (50 points reference index; s.a.)

2. Economic Activity in Mexico How Do You Consider the

Current Situation in Companies to Make Investments?

(Balance of responses in %; s.a. 1/)

Leading Indicator of Mexico (Index 2003=100; s.a.)

42

44

46

48

50

52

54

56

58

30

35

40

45

50

55

60

Jan

-05

Mar

-06

May

-07

Jul-

08

Sep

-09

No

v-1

0

Jan

-12

PCI

PMI (left axis)-45

-30

-15

0

15

30

Jan

-06

Sep

-06

May

-07

Jan

-08

Sep

-08

May

-09

Jan

-10

Sep

-10

May

-11

Jan

-12

105

110

115

120

125

130

Jan

-07

No

v-0

7

Sep

-08

Jul-

09

May

-10

Mar

-11

s.a./ Seasonally adjusted and trend data. Source: Encuesta Mensual de Opinión Empresarial; INEGI and Banco de México.

s.a./ Seasonally adjusted and trend data. 1/ 3-month moving average. Source: Encuesta Mensual de Coyuntura en el Sector Manufacturero. Banco de México.

No

v-1

1





Determinants


Outline


The Board of Governors maintained the Overnight Interbank Interest Rate at 4.5 percent from October to January.

The conduction of monetary policy considered:

Transition toward a less favorable growth environment.

Slack conditions in the labor market.

The recent increase in inflation is the result of transitory phenomena, reflecting relative prices adjustments.

The exchange rate’s effect on inflation is anticipated to be moderate and temporary.

Well-anchored inflation expectations.


19

3. Monetary Policy and Inflation Determinants

Consumer Price Index

(Annual % change)

Source: Banco de México and INEGI.

0

1

2

3

4

5

6

7

8

9

10

I 200

5

II 2

00

5

III 2

005

IV 2

00

5

I 200

6

II 2

00

6

III 2

006

IV 2

00

6

I 200

7

II 2

00

7

III 2

007

IV 2

00

7

I 200

8

II 2

00

8

III 2

008

IV 2

00

8

I 200

9

II 2

00

9

III 2

009

IV 2

00

9

I 201

0

II 2

01

0

III 2

010

IV 2

01

0

I 201

1

II 2

01

1

III 2

011

IV 2

01

1

CPI

Core

Non-core


20


Subindices of Core Merchandise Prices

(Annual % change)


Subindices of Core Services Prices

(Annual % change)


0

1

2

3

4

5

6

7

8

9

10

IV 2

00

4

II 2

00

5

IV 2

00

5

II 2

00

6

IV 2

00

6

II 2

00

7

IV 2

00

7

II 2

00

8

IV 2

00

8

II 2

00

9

IV 2

00

9

II 2

01

0

IV 2

01

0

II 2

01

1

IV 2

01

1

Merchandise Food, beverages and tobacco Non-food merchandise


21


0

1

2

3

4

5

6

7

8

9

10

IV 2

00

4

II 2

00

5

IV 2

00

5

II 2

00

6

IV 2

00

6

II 2

00

7

IV 2

00

7

II 2

00

8

IV 2

00

8

II 2

00

9

IV 2

00

9

II 2

01

0

IV 2

01

0

II 2

01

1

IV 2

01

1

Services

Housing

Education (tuition)

Other services

Output Gap 1/

(% of potential output; s.a.) Tradables and Non-tradables

Output Gap 3/

(% of potential output; s.a.)

s.a./ Calculated with seasonally adjusted data. 1/ Estimated using the Hodrick-Prescott (HP) filter with tail correction method; See Banco de México (2009), “Inflation Report April – June 2009”, p.69. The shaded area is the 95% confidence interval of the output gap, calculated with the unobserved components method. 2/ GDP figures up to the third quarter of 2011; IGAE up to November 2011. Source: Calculated by Banco de México with data from INEGI.

s.a./ Calculated with seasonally adjusted data. 3/ Estimated using the Hodrick-Prescott (HP) filter with tail correction method; See Banco de México (2009), “Inflation Report April – June 2009”, p.69. 4/ Includes mining and manufacturing. 5/ Includes services, construction and electricity, gas and water. Source: Calculated by Banco de México with data from INEGI.

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

Jan

-04

Jun

-04

No

v-0

4A

pr-

05

Sep

-05

Feb

-06

Jul-

06

Dec

-06

May

-07

Oct

-07

Mar

-08

Au

g-0

8Ja

n-0

9Ju

n-0

9N

ov-

09

Ap

r-1

0Se

p-1

0Fe

b-1

1Ju

l-1

1

GDP 2/

IGAE 2/

-12

-10

-8

-6

-4

-2

0

2

4

6

Jan

-04

Jun

-04

No

v-0

4A

pr-

05

Sep

-05

Feb

-06

Jul-

06

Dec

-06

May

-07

Oct

-07

Mar

-08

Au

g-0

8Ja

n-0

9Ju

n-0

9N

ov-

09

Ap

r-1

0Se

p-1

0Fe

b-1

1Ju

l-1

1

IGAE: Tradables 4/

IGAE: Non-tradables 5/

No

v-1

1

No

v-1

1


22



1/ Permanent and temporary workers in urban areas. Source: IMSS and seasonally adjusted by Banco de México.

s.a./ Seasonally adjusted and trend data. Source: Prepared by Banco de México with seasonally adjusted data from the Extended Industry Survey (Encuesta Industrial Ampliada), INEGI.

86

88

90

92

94

96

98

100

102

104

106

108

Jan

-07

No

v-0

7

Sep

-08

Jul-

09

May

-10

Mar

-11

Unit cost

Productivity

Dec

-11

13.4

13.6

13.8

14.0

14.2

14.4

14.6

14.8

15.0

15.2

15.4

15.6

Jan

-07

Jun

-07

No

v-0

7A

pr-

08

Sep

-08

Feb

-09

Jul-

09

Dec

-09

May

-10

Oct

-10

Mar

-11

Au

g-1

1Ja

n-1

2

Original

Seasonally adjusted

2

3

4

5

6

7

Jan

-07

Jun

-07

No

v-0

7

Ap

r-0

8

Sep

-08

Feb

-09

Jul-

09

Dec

-09

May

-10

Oct

-10

Mar

-11

Au

g-1

1

National Unemployment Rate (%; s.a.)

IMSS-insured Workers 1/

(Million workers) Productivity and

Unit Cost of Labor Force in the Manufacturing Sector

(Index 2008=100; s.a.)

No

v-1

1


23


24 Inflation Report


-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

No

v-1

1

Dec

-11

Jan

-12

Feb

-12

Mar

-12

Ap

r-1

2

May

-12

Jun

-12

Jul-

12

Au

g-1

2

Sep

-12

Oct

-12

Oct-11

Jan-12

Monthly Headline Inflation Expectations for 2011 and 2012 1/

(%)

Inflation Expectations for the End of 2012

(%)

Source: Banco de México’s survey.

3.0

3.5

4.0

4.5

5.0

5.5

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar

-11

May

-11

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

Headline

Core

Non-core

4.75

3.79

3.50


1/ Black bars are observed data. Source: Banco de México’s survey.

25 Inflation Report


1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Jan

-10

Mar

-10

May

-10

Jul-

10

Sep

-10

No

v-1

0

Jan

-11

Mar

-11

May

-11

Jul-

11

Sep

-11

No

v-1

1

Jan

-12

End 2012End 2013Next 4 yearsNext 5-8 yearsVariability interval 3.0

3.5

4.0

4.5

5.0

5.5

Jan

-05

Jun

-05

No

v-0

5

Ap

r-0

6

Sep

-06

Feb

-07

Jul-

07

Dec

-07

May

-08

Oct

-08

Mar

-09

Au

g-0

9

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

10-year bond break-even inflation

20-day moving average

1/ The break-even inflation and inflationary risk implicit in 10-year bonds is calculated based on nominal and real interest rates of the secondary market. Source: Banco de México estimate with data from Bloomberg.

Source: Banco de México’s survey.

Headline Inflation Expectations (%)

Break-even Inflation and Inflationary Risk 1/

(%)


Interest Rate Spread between Mexico and the U.S.

(Percentage points)

1/ Since January 21, 2008, the one-day (overnight) interest rate corresponds to the target for the Overnight Interbank Interest Rate. Source: Banco de México and Federal Reserve.

2/ Since January 21, 2008, the one-day (overnight) interest rate corresponds to the target for the Overnight Interbank Interest Rate. Source: Banco de México and Proveedor Integral de Precios (PiP).

3

4

5

6

7

8

9

10

11

12

13

Jul-

07

Dec

-07

May

-08

Oct

-08

Mar

-09

Au

g-0

9

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

1 day

1 month

3 month

1 year

10 year

30 year

Mexico and U.S. Reference Rate 1/

(%) Interest Rates of Government

Securities 2/

(%)

0

1

2

3

4

5

6

7

8

9

Jul-

07

Dec

-07

May

-08

Oct

-08

Mar

-09

Au

g-0

9

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

1 day

1 month

3 month

1 year

10 year

30 year

0

1

2

3

4

5

6

7

8

9

10

Jul-

07

Dec

-07

May

-08

Oct

-08

Mar

-09

Au

g-0

9

Jan

-10

Jun

-10

No

v-1

0

Ap

r-1

1

Sep

-11

Feb

-12

Mexico

U.S.

Source: Proveedor Integral de Precios (PiP) and U.S. Department of the Treasury.


26


12.79

12.74

12.65

Exchange Rate and its Expectations for the End of 2012 and 2013

(Pesos per dollar)

11.0

11.5

12.0

12.5

13.0

13.5

14.0

14.5

Dec

-09

Feb

-10

Ap

r-1

0

Jun

-10

Au

g-1

0

Oct

-10

Dec

-10

Feb

-11

Ap

r-1

1

Jun

-11

Au

g-1

1

Oct

-11

Dec

-11

Feb

-12

Observed

2012

2013

1/ The observed exchange rate is the daily FIX exchange rate. The latest data for the observed exchange rate is February 13, 2012 and the foreign exchange rate forecasts is February 7, 2012. Source: Banco de México and Banamex survey.

Government Securities Holdings by Foreign Investors (Billions of pesos)

0

50

100

150

200

250

300

350

150

250

350

450

550

650

750

Jan

-08

Jun

-08

No

v-0

8

Ap

r-0

9

Sep

-09

Feb

-10

Jul-

10

Dec

-10

May

-11

Oct

-11

Bonds

CETES (left axis)

Source: Banco de México.


27


Feb

-12

The deterioration of the international economic environment implies as a natural response a depreciation of the real exchange rate in Mexico.

It is foreseeable that the adjustment of the real exchange rate will initially be through the nominal exchange rate.

As domestic prices adjust, it should be expected that part of this initial nominal exchange rate depreciation will revert.

Until now, there are no signs of second round effects.

It is anticipated that the effect of the exchange rate depreciation on inflation will not affect the economy’s price formation process.

28






Determinants


Outline



Growth of the Mexican Economy:

Between 3.0 and 4.0% in 2012 and 2013.

Employment:

Increase of between 500 and 600 thousand IMSS-insured workers in 2012 and 2013.

Current Account:

Deficit of USD 13.7 billion (1.2% of GDP) for 2012.

Deficit of USD 17.7 billion (1.4% of GDP) for 2013.


30

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4


GDP Growth (Annual %; s.a.)

2011 Q4

2010 2013 2008 2009 2011 2012

2012 Q4

2013 Q4

s.a./ Seasonally adjusted. Source: INEGI and Banco de México.

2011 Q4

2012 Q4

2013 Q4

2010 2013 2008 2009 2011 2012

Output Gap 1/

(%)

1/ Calculated with seasonally adjusted data. Source: Banco de México.

Fan Charts


31



32

Balance of Risks for the Growth Scenario

Downside: Upward:

That the U.S. economy grows at lower rates than expected.

An increase in investors´ risk aversion.

That the actions taken by European authorities continue to improve the functioning of financial markets.

That the U.S. economy evolves beyond expectations.

It is estimated that inflation will maintain a performance consistent with the convergence process towards the 3 percent permanent inflation target:

Headline Inflation:

• 2012: inflation most likely will lie between 3 and 4 percent, in line with the forecast presented in the last Inflation Report.

• 2013: it is also anticipated to locate between 3 and 4 percent and to approach the lower bound of that interval.

Core Inflation:

• 2012: it will most likely be very close to 3 percent.

• 2013: it is expected to remain around 3 percent.



33

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4

Observed inflation

Headline inflation target

Variability interval

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4

Observed inflation

Headline inflation target

Variability interval

Annual Headline Inflation

(Annual % change)

Source: INEGI and Banco de México. Source: INEGI and Banco de México.

Annual Core Inflation (Annual % change)

Fan Charts

2008 2010 2012 2006 2008 2010 2012 2006


2011 Q4

2012 Q4

2013 Q4

2011 Q4

2012 Q4

2013 Q4


34



35

External financial shocks that could lead to a significant depreciation of the exchange rate.

The possible rebound of some agricultural product prices.

→ In sum, the balance of risks for inflation remains neutral.

Further weakening in both external and domestic demand.

Improvement in the risk perception of Mexico in international markets.

Balance of Risks for the Inflation Forecast

Downside: Upward:

4. Forecasts and Balance of Risks The economy has shown great resilience to external shocks, as a

result of the country’s strong macroeconomic fundamentals:

Monetary policy aimed at ensuring price stability.

Prudent fiscal policy.

Flexible exchange rate regime.

Well-capitalized financial system with an adequate regulation and supervision.

However, it is crucial to strengthen the domestic sources of growth.

Pending structural reforms are essential to raise productivity and the potential growth rate of the economy in an environment of low and stable inflation.


36

The Board of Governors considers that the current monetary policy stance is conducive to reaching the 3 percent permanent inflation target. In addition, the Board of Governors:

Has been committed to closely follow the world economic growth outlook and its possible implications for the Mexican economy, which, in a context of extremely loose monetary conditions in the main advanced economies, could eventually make convenient an easing of the monetary policy stance.

Will continue to monitor the behavior of the inflation determinants that might signal widespread pressures on prices, in order to adequately adjust the monetary stance, pursuing at all times the convergence of inflation to its 3 percent permanent target.



37

Documents

Inflation Report...Emerging Economies: GDP Growth Forecasts for 2012 (%) Source: Blue Chip. Source: Blue Chip. -1.0-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 1 11 11 11 11 1 11 11 11 1 1