With a certain tranquility and calm was the conduct of the authorities of the Bank of Guatemala (Banguat) and the Monetary Board (JM) who presented at a press conference the performance of inflation for 2024, and in which they emphasized that it will remain under control, in around 4%, which is the target range, and that the forecast already integrates some observed variables, especially those related to the possible effects of climate change, specifically due to the impacts of the phenomenon of the Niño o to Niña.
The inflation outlook for this year was presented last Wednesday, February 21, following the JM decided to maintain the Leading Monetary Policy Interest Rate at 5%, in its first session held this year. In 2023, inflation closed at 4.18% and in January of this year it was 3.82%, which means a sharp decrease.
What expectations are there for the next 12 months regarding inflation? The authorities reviewed what may come for the remainder of 2024, based on their internal analyses.
International context
The authorities detailed that the prospects for global economic growth, especially the United States economy, performed better than expected in 2023, and although it was expected that the economy would grow at a rate of 2%, it ended up growing 2.5%. and by 2024 it might grow 2.1% positively.
In the case of the euro zone, it only grew 0.5% in 2023 and 0.9% in 2024, so it will be “well below global growth.”
In the block called emerging economies, the participation of the People’s Republic of China stands out, which achieved a growth of 5.2% by 2023, this despite a real estate problem in its economy and the forecast for 2024 is 4.6%, which also would be associated with the restrictions of that sector.
While the Indian economy shows a very dynamic performance since last year it grew 6.7% and 6.5% for 2024. Brazil registered a growth of 3.1% and for 2024 1.7%, that is, a deceleration and finally Mexico achieved a rate of 3.4% last year and 2.7% for this year.
The world economy would be growing by 3.1% during 2023 and it is the same percentage expected for this year.
Variable sensible
The analysis for the price of a barrel of oil – as a raw material for the production of derivatives that are imported to Guatemala – and which is considered a sensitive variable for the national economy, as of February 20, recorded a price spot of US$78.18 in the WTI market – Texas intermediate oil – which is the reference for the country.
For 2023 the average price of this raw material was US$77.63, and for last February 20 the average is US$74.85, but the average price calculated for 2024 is US$78.42, which would be a very similar value to that of 2023. .
The internal environment
Another of the variables that support the leading Monetary Policy rate remaining at 5% was the analysis of the local situation.
The first indicator was the closing of the gross domestic product (GDP) growth of 2023, which was 3.5% and for 2024, growth is projected in the range of 2.5 to 4.5% with a central or core value of 3.5% that is maintained.
For December 2023, the monthly index of economic activity (Imae) confirmed 3.5%, which is the accumulated value of the series. While the index of confidence in economic activity (Icae) showed a recovery of 57.80 points as of last January, which anticipates an economic expansion for the next six months.
Meanwhile, foreign exchange from family remittances closed last year at US$19,804 million, and as of February 15, the accumulated record is US$2,250.3 million, which means a growth of 5.6% compared to the same period of the year. last year, which would be increasing in the rest of the period to close in December 2024 at 9.5% to approach approximately US$21,685.4 million.
Meanwhile, bank credit to the private sector has maintained a dynamic performance and as of February 15 reported a growth of 15.6%, but a gradual decrease is forecast for the rest of the year to be in a range of 9% to 12%. respectively.
“Gross domestic product (GDP) growth in 2023 was 3.5% and for 2024 it is projected in a range of 2.5 to 4.5%”
Banguat Information
Of this variable, the greatest dynamism is for the major business credit segment with 14.3%, but the one reporting a slowdown is consumer credit with 21.6% – as of that date – but it is still growing strongly, and mortgage credit with 8.2% , “all this has occurred in an environment when interest rates have remained with a slight downward trend,” it was stated.
Regarding the interest rates -weighted average- as of December 2023, for the larger business segment it is 6.74%; minor business 9.61% and for housing mortgage 8.75%.
Inflation Expectations
With what was observed in inflation last January, which was 3.82%, which is a reduction from 4.18% in December, “with that value it is estimated that inflation would be closing at 4% by 2024,” the authorities stated.
Inflation expectations are anchored to the Monetary Policy, which is 4% plus/minus 1%, which places inflation at 4.47% for the next 12 months and 4.29% for 24 months, according to the technical analysis.
The factors that maintain the leading rate at 5%
Álvaro González Ricci and José Alfredo Blanco Valdés, president and vice president of the Bank of Guatemala (Banguat) and the JM, as well as Johny Gramajo, economic manager, justified why the Leading Monetary Policy Interest rate is maintained.
They explained that when external factors were analyzed, it is relevant that in the context of global economic growth it has been better than expected, so “there are no signs of recession or the probability of a recession has been reduced, but there is a probability of situations that have to do with raw materials, that oil prices stopped falling, and that they begin to rise this year, and that they will rise a little more in the remainder of the year, and on that side some internal prices might be seen, Therefore, it is advisable that, from an external point of view, the Leading Monetary Policy Interest rate not be reduced.”
On the other hand, the United States Federal Reserve (Fed) has announced that it is going to reduce the interest rate “more gradually than expected,” and for next March in its review of the indicator, it does not anticipate any reduction “and at an international level no significant reductions are being observed in the first half of the year.”
On the internal side, it was stated that consumer credit is still relatively high, growing at double digits of more than 20%, but it has been slowing down, and on that side there are still risks that there may be inflationary pressures, taking into consideration that “Consumption is the main component at the level of aggregate demand, which represents 90% of GDP.”
Also, inflation expectations help maintain the Líder interest rate around 5%, “which makes an inflation goal of 4% sustainable in the medium and long term, but there are internal and external factors that modify the From a prospective point of view of the Monetary Policy, this appreciation should be maintained so that any evolution will affect the trajectory of inflation in the future.”
Climate change
When talking regarding the implications that the phenomenon of the Niño, Within the official estimates that are made, meteorological conditions and inflation forecasts are evaluated, so both the El Niño phenomenon and the Niña It has an impact on crops.
In this regard, it was commented that a phenomenon of the Niño stronger than normal generates drought and therefore a shortage in the domestic market, in agricultural products, which ends up raising the price of some products. What the La Niña phenomenon does is that, with excess rain, crop losses occur, which also ends up affecting prices.
The interference of the phenomenon of Niño might extend until the middle of this year, with the external information that the JM has, and in the second part of the year the phenomenon of Niña would begin to have an influence.
“There is already interference and conditions of lower production in certain crops that have more to do with drought and raising the prices of some goods would be expected. There are increases in the average prices of tomato, increases in the average prices of onions, increases in the average price of avocado, for example, which are for reasons of increased costs and not so much due to the meteorological phenomenon in particular. “Crops that, if directly related, increase in price more strongly, and other goods increase as a result of a second round effect of those that, if they were directly affected by weather conditions, which are already included in the inflation forecasts.” Gramajo noted.
For this reason, the projections have an upper limit and a lower limit, it was concluded.
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#Inflation #stable #controlled #Banguat #forecast