Mexico Inflation July 2017

Mexico

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.

In its May inflation report, the Central Bank highlighted that inflation will remain above its 3.0% target for most of the year and gradually converge to the target towards the end of 2018. Panelists surveyed by FocusEconomics this month expect inflation to end 2017 at 5.7%, which is unchanged from last month’s forecast. For 2018, the panel sees year-end inflation at 3.8%.


Author:, Economist

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Mexico Inflation July 2017

Note: Month-on-month and year-on-year changes of consumer price index (CPI) in %.
Source: Mexico National Statistics Institute (INEGI).


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