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Mexico Inflation December 2017

Mexico: Inflation hits over 16-year high in December

Price pressures remained acute in December, with pass-through effects from a weakened peso and higher commodity prices fueling increases on both core and non-core prices. Consumer prices rose 0.59% from the previous month in December, well below the 1.03% increase recorded in November and largely in line of market expectations. The weaker increase reflected lower liquified gas prices and seasonal declines in tourism and air fares.

Inflation climbed to an over 16-year high of 6.8% in December from 6.7% in November. Agricultural price pressures continued to mount on the back of higher prices for raw food. Similarly, gas and gasoline inflation continued to accelerate through the month due to the government liberalization of energy prices early this year and higher global oil prices. Meanwhile, the closely monitored core consumer price index—which excludes volatile categories such as fresh food and energy—rose 0.42% in December from the previous month, above the 0.34% increase recorded in November. Core inflation was steady at 4.9% in December.

The headline figure is expected to start declining in the first quarter of 2018 on the back of a favorable base effect—the effects of the price increase on gasoline will unwind in January—weakening domestic demand and tight monetary conditions. The minutes of the December monetary policy meeting showed a more hawkish tone under new Governor Alejandro Díaz de León, with board members stressing additional interest rate increases may be needed to contain second-order effects on prices. This should provide some support to the beleaguered peso, which is expected to have a bumpy road ahead of NAFTA talks and the July presidential election.

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