Mexico: Inflation continues to creep up in August
September 7, 2017
Consumer prices rose 0.49% from the previous month in August, above the 0.38% increase recorded in July and in line with market expectations of a 0.50% increase. Details showed that pass-through effects of the peso continued to recede, with price increases for non-food merchandise goods seemingly more contained. Nonetheless, these effects were still visible in prices for processed food and some services, particularly education. The panorama is bleaker in the noncore CPI, which spiked again in August due to strong upward pressure from fresh fruit and vegetables and energy prices.
Inflation rose from 6.4% in July to 6.7% in August, the highest level since May 2001. The increase, however, continues to reflect supply shocks on agricultural products rather than much-dreaded second-order effects, and inflation is expected to start trending lower in upcoming months, particularly as a benign base effect kicks in as soon as September. Nonetheless, inflation is not expected to meet the 4.0% upper bound of the Central Bank’s target range until late 2018.
The closely-monitored core consumer price index—which excludes volatile categories such as fresh food and energy—rose 0.25% in August from the previous month, which was slightly below the 0.27% increase observed in July. Core inflation inched up to 5.0% in August, a small uptick over the 4.9% figure recorded in July. Core inflation seems to have finally stabilized, which could signal that headline inflation is set to finally decline.
The August inflation report mostly spelled good news. While inflation has yet to find a ceiling, pass-through pressures from the peso’s plunge in value last year seem to be more contained, while upward pressure in energy prices appear to be faltering. The damage, however, has already been done. Retail sales growth nearly stagnated at the close of the second quarter, while our panel expects private consumption to have suffered in H2 from the effects of multi-year high inflation, which continues to erode purchasing power.
Author: David Ampudia, Economist