Mexico: Inflation accelerates further in June
July 7, 2017
Consumer prices rose 0.25% from the previous month in June, which was marginally below market expectations of a 0.26% increase and contrasted last month’s 0.12% rise. June’s headline figure was the result of higher prices for fruits and vegetables, restaurants, airfares and tourist services. Core merchandise goods also grew throughout the month, suggesting that the pass-through effect of the weakening of the peso has not yet fully disappeared.
Inflation inched up to 6.3% in June from 6.2% in May, the highest level since December 2008. As a result, inflation continued to move further above the 4.0% upper bound of the Central Bank’s target range, and is expected to remain there until next year.
The closely-monitored core consumer price index—which excludes volatile categories such as fresh food and energy—rose 0.30% in June from the previous month, which was slightly above the 0.28% increase observed in May.
This month’s inflation report was largely good news for the Mexican economy. Inflation saw signs of moderating momentum, and although pass-through effects of the peso remained visible and second order effects were seen in some service categories, these effects are set to gradually dissipate in upcoming months. In line with this, our panel sees inflation easing in H2, driven by a more stable peso, Banxico’s monetary tightening and weaker demand-pull pressures. The panel of economists expects inflation to then ease considerably from Q1 2018 onwards, the result of a more benign base effect.
Author: David Ampudia, Economist