Mexico: Consumer confidence rises to pre-election levels in May
June 8, 2017
Sentiment among Mexican consumers continued to increase in May after a bumpy start to the year had seen the index plummet to the worst reading on record in January. The unadjusted index of consumer confidence produced by the Statistical Institute (INEGI) climbed from 83.8 in April to 86.8 in May, the best reading since July 2016 and well above the milder increase to 84.6 that market analysts had expected. The recovery of the peso, seasonal subsidies on electricity bills and a more conciliatory tone from U.S. authorities regarding trade and immigration with Mexico outstripped the negative effects of heightened inflation.
The May report showed a broad-based increase across the sub-indices of consumer confidence, even if the overall reading remained low. Consumers’ assessment of both their current and future financial situation was less pessimistic in May compared to the previous month. Their expectations for the country’s current and future economic situation also picked up. The clearest improvement was seen in Mexicans’ propensity to purchase big-tickets, which rose markedly in May despite mounting inflationary pressures.
This month’s survey suggests that the effects of inflation, which hit a nine-year high of 6.2% in May, are not weighing as much as originally feared on consumers. Indeed, although inflation is denting purchasing power, the relative tightness of the Mexican labor market—the unemployment rate has inched up for two consecutive months but remains well below the long-term average of 4.4%—and steady remittances growth are cushioning the fall in real disposable income and shoring up sentiment.
Author: David Ampudia, Economist