Citi maintains its exchange rate projections at 18 pesos per dollar and inflation at 4.07% for the end of the year. According to Citi Mexico's chief economist, Julio Ruiz, higher oil prices for over six months will have a second-order impact on inflation. He explained that in the short term, current pressures on commodities will not have a strong effect on inflation, but if this scenario persists, it will lead to price increases in the underlying goods sector, which sets the medium and long-term path for inflation. In February, inflation exceeded Banxico's target, reaching 4.02%. On the fiscal front, the effect is also minimal. On one hand, there could be a benefit from oil prices exceeding budgeted amounts, however, Mexico is not a net exporter of energy products. 'When prices rose in 2022—with the war in Ukraine—Hacienda's revenues from IEPS plummeted to zero, but it helped mitigate gasoline prices,' said Ruiz. For now, market nervousness is reflected in declines in stock markets. It is worth noting that since the conflict began, the dollar has regained ground as a safe-haven currency. Oil prices surpassed $100 per barrel, and Sheinbaum seeks an agreement with gas station owners. Ruiz finds it difficult to project the course of the conflict, but the reactivation of crude oil transport through the Strait of Hormuz will be key. The conflict in the Middle East has limited financial impacts for Mexico, but it could take a much more worrying turn if the war unleashed by the United States and Israel and Iran's tough response last more than six months, according to Citi. In the markets, the uncertainty about the course of this conflict is total, and in a matter of hours, the conversation is no longer just about the speed at which oil prices have risen, but also the increase in fertilizer prices, which generates new inflationary pressures. Although it is difficult to predict the course of the conflict, analysts are already analyzing the timeframe in which it could mean pressures for economies. The main index of the BMV showed a 2% decline to close at 65,741.02 points, and the FTSE BIVA index of the Institutional Stock Exchange (Biva) fell 2.39% to 1,305.15. The peso has also suffered volatility: it started the day near 18 units but appreciated by 0.84% to close at 17.65 units per dollar. Additionally, the benefit would be erased if the IEPS benefit is reactivated, as the government is analyzing. On the same day, Trump warned that the war could end soon and stated that Iran has no naval force, air force, or communications, and its arsenal is dispersed and its drone manufacturing capacity is being destroyed, so 'there is nothing left' in a military sense. For the markets, these are not yet conclusive signals.
