Mexico: Inflation hits fastest speed in nine years
June 8, 2017
Consumer prices eased 0.12% from the previous month in May, marginally above market expectations of a 0.13% decrease and a contrast to last month’s 0.12% rise. Nonetheless, the decline did not signal an inflection point, as readings in April and May tend to be weak due to the effect of electricity subsidies on energy prices. Indeed, every other subcomponent rose in monthly terms in May, with core goods prices still rising markedly as a result of lagging pass-through effects and food products soaring throughout the month.
Inflation rose to 6.2% in May from 5.8% in April, marking the highest level since May 2009. Inflation continued to move further above the 4.0% upper bound of the Central Bank’s target range, and is expected to remain there for most of the year.
The closely-watched core consumer price index—which excludes volatile categories such as fresh food and energy—rose 0.28% in May from the previous month, which was slower than the 0.45% increase seen in April. In particular, core prices for services barely rose in May after having leaped in April on the back of Easter-linked pressures.
Inflation is expected to gradually ease in the months to come, driven by a stronger peso, Banxico’s monetary tightening and weaker demand-pull pressures. Nonetheless, heightened inflationary pressures at the outset of the year—the result of the gradual liberalization of oil and gas prices, a hike to the minimum salary and pass-through effects from a weakened peso—will prevent inflation from nearing the Central Bank’s 3.0% mid-point target until H2 2018.
Author: David Ampudia, Economist