Mexico: Increase in gasoline prices in early 2017 will fuel inflation further after 2016 climb
January 9, 2017
Mexico’s inflation ended 2016 slightly above Banxico’s target of 3.0% as an extremely weak peso caused prices to accelerate in the final quarter of the year. Consumer prices rose 0.46% from the previous month in December, which fell short of the 0.52% increase the markets had expected and followed a 0.78% increment in November. According to the National Statistics Institute (INEGI), the monthly increase stemmed from higher prices for food, beverages and tobacco, as well as an increase in energy prices.
Inflation rose from 3.3% in November to 3.4% in December, moving further above the Central Bank’s target of 3.0% and marking the highest level in two years. This was in line with the Bank’s view that inflation would end the year “slightly above” its target, but below the upper bound of the target range (4.0%).
Meanwhile, the closely-watched core consumer price index—which excludes volatile categories such as fresh food and energy—increased 0.45% in December from the previous month, coming in above the 0.22% rise in November. As expected, prices for core goods, which are the most likely to rise on a weak currency, led the monthly increase. Core inflation climbed to 3.4% in December from 3.3% in November.
After spending most of 2016 below the Central Bank’s target, inflation accelerated in the fourth quarter of the year, affected mainly by the increasing impact of a weaker peso on certain imported goods. Inflation is likely to continue to gather momentum in the coming months due to a larger-than-usual increase in the minimum wage, the continued loss of the peso against the greenback, and a big jump in gasoline prices at the start of 2017.
Author: Ricardo Aceves, Senior Economist