Economic Indicator Briefing - Mexico - Inflation

In December, consumer prices rose 0.41% over the previous month. The reading was below both the 0.52% price increase recorded in November and market expectations, which had anticipated prices would rise 0.71%. The price rise was broad-based, although higher prices for education and recreation as well as for transport were the main drivers behind the monthly figure.
Despite the price increase in December, annual headline inflation fell from 3.9% in November to 3.6%, which marked the lowest level since August 2006. The core inflation index, which excludes more volatile categories such as oil, fresh fruits and vegetables, mirrored the developments seen in headline inflation and added 0.50% over the preceding month. As a result, annual core inflation inched down from 4.6% in November to 4.5%. Despite the more moderate figures, inflation remains above the Central Bank's long-term inflation target of 3.0%, although it has now fallen back within the ±1.0% tolerance margin.

At its last policy meeting on 27 November, the Central Bank left the benchmark interest rate unchanged at 4.50% for the fourth consecutive month, in a decision expected by the market. Monetary authorities stated that the recent tax hikes implemented by the government will increase prices in the coming months, although they specified that the impact should be a one-off effect, not a permanent phenomenon. The Bank anticipates consumer prices to rise to between 4.75% and 5.25% by the end of 2010.

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