Mexico: Inflation continues to creep up in July
August 9, 2017
Consumer prices rose 0.38% from the previous month in July, notably above the 0.25% increase recorded in June. Although the figure came in above market expectations of a milder 0.32% increase, the jump reflected transitory supply shocks on agricultural products, rather than a surprise change in core prices. As such, analysts are unlikely to read too much into this month’s non-core increase, particularly since core prices seem to be stabilizing as pass-through effects recede and demand pressures remain muted.
Inflation inched up from 6.3% in June to 6.4% in July, 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 it 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 0.27% in July from the previous month, which was slightly below the 0.30% increase observed in June.
The July inflation report was a mixed one for the Mexican economy. Although the increase in non-core inflation should be taken with a pinch of salt, inflation continues to grind higher and it has yet to find a ceiling, which could prompt the Central Bank to intervene and tighten monetary conditions further. Nonetheless, our panel expects inflation to trend lower throughout the rest of the year, as one-off effects fade away and core inflation stabilizes in light of absent pressures from the demand side and a more supportive peso.
Author: David Ampudia, Economist