By Ana Isabel Martinez and Miguel Gutierrez
MEXICO CITY (Reuters) - Bank of Mexico board member Jonathan Heath said core inflation in Mexico should peak in the first quarter and then begin a "not so fast" downward trajectory, anticipating the bank could hike its key interest rate by 25 or 50 basis points next week.
Heath said in a podcast published on Wednesday by Mexican bank Banorte that inflation should conclude 2022 very close to 4% and converge "much closer" by mid-2023 to the 3% target of Banxico, as the Bank of Mexico is known.
Mexican headline inflation eased slightly to 7.13% in early January from the last half of December, still more than double the central bank's target rate of 3%, while core inflation, which strips out some volatile items, hit its highest level in over 20 years.
"This inflation bubble, I think we can properly name it pandemic inflation, arises precisely in the wake of the pandemic, which has caused all the disruptions in value chains globally," said Heath.
At its last monetary policy meeting in December, Banxico stepped up efforts to rein in surging inflation, raising the benchmark interest rate by 50 basis points to 5.50%, its fifth consecutive meeting hiking rates.
"It's very clear to me that the debate for February, as the market itself and the analysts are saying, well I think it's clear that there will be a rate hike in February and the debate will be whether it will be 25 or 50 (basis points)," said Heath.
The next meeting will take place on Feb. 10.
Heath noted that after February's monetary policy meeting future moves by Banxico would be contingent on any decision made by the U.S. Federal Reserve and to simply see how the hikes by the Fed come and go along with them, precisely at that same pace.
He said that from March onwards it would be difficult to maintain a "rhythm of 50 basis points (hikes)" because of an expected cycle of hikes by the U.S. Federal Reserve.
Heath said that a lack of private investment would likely keep economic growth depressed in 2022, adding that gross domestic product growth could be below 2%.
Mexico's economy contracted in the fourth quarter for a second straight quarter, putting it in a technical recession.
Some of President Andres Manuel Lopez Obrador's policy decisions, especially in the key energy sector, have spooked investors.
Heath said disruptions in the global supply chain, the evolution of the pandemic and the impact of an outsourcing law hurt Mexico's economy in 2021, but added if "these negative factors soften" the economy could grow above 3% and close to 4% this year.
Lopez Obrador on Wednesday forecast 5% economic growth for 2022.