Mexico’s factories grow for 2nd month in a row; inflation bites again

MEXICO CITY (Reuters) – Mexico’s manufacturing sector grew, albeit slightly, for the second straight month in October, though challenges persisted, as stubbornly high inflation was one of several factors weighing on demand, a survey showed on Tuesday.

The seasonally adjusted S&P Global (NYSE:) Mexico Manufacturing Purchasing Managers’ Index remained unchanged at 50.3 in October, from the same level in September. Importantly, that is above the key 50-threshold that separates growth from contraction.

Mexico’s factories shrank for more than 2-1/2 years starting in March 2020 due to the economic fallout of the COVID-19 pandemic. The index hit a record low of 35.0 in April 2020 during the height of the country’s pandemic-related lockdowns.

Survey data for October showed that output slipped as inflationary pressures, cash flow problems and material shortages dampened client demand.

“Demand, supply and cash shortfalls continued to prevent a recovery of the Mexican manufacturing industry,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

“Clients again reduced orders due to inflationary pressures, liquidity squeezes and low sales at their end, while goods producers cut input purchasing and focused on destocking in order to free-up working capital,” De Lima added.

Mexican headline annual inflation in the first half of October inched down to 8.53% from 8.64% in the second half of September, but still remained near its highest level in more than two decades.

De Lima noted that input scarcity, the war in Ukraine, energy price volatility and transportation difficulties pushed up cost inflation in October.

There was some positive news for Mexican factories, as firms were on average optimistic that output levels would be higher in a year’s time.

“But worries over insolvency risks and unrelenting inflationary pressures dampened confidence,” De Lima added.

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