Economic Indicator Briefing - Mexico- Inflation

In October, consumer prices increased 0.68% over the previous month, which was unchanged compared to the monthly rise observed in September. Moreover, the reading came in broadly in line with market expectations, which had anticipated prices adding 0.62% over the previous month. Higher prices for housing as well as for food were the main drivers behind the monthly price rise.
As a result of the pronounced price increase in October, annual headline inflation rose from 5.5% in September to 5.8%, which is the highest rate in seven years. The core inflation index, which excludes more volatile categories such as oil, fresh fruits and vegetables, added a more moderate 0.31% over the preceding month. As a result, annual core inflation inched down from 5.4% in September to 5.3%. Thus, both headline and core inflation remain well above the Central Bank's long-term inflation target of 3.0% and even exceed the upper limit of the ±1.0% tolerance margin.

Nevertheless, on 17 October, the Central Bank left the benchmark interest rate unchanged at 8.25% in a move that was expected by the market. Monetary authorities argued that although inflation may accelerate again, upside risks to economic growth owing to the global credit crunch justified the decision. Furthermore, Central Bank's governor Guillermo Ortiz recently hinted at possible rate cuts in the coming months, once inflationary pressures start to ease.

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