Mexico: Inflation jumps in January due to fading of one-off effects of telecoms prices

In January, consumer prices rose 0.38% over the previous month. The result was down the 0.41% increase registered in December, but sharply overshot the 0.28% rise the markets had expected. The National Statistics Institute (INEGI) reported that the monthly increase was mainly the result of an increase in non-core prices, particularly prices for fresh food.

After inflation fell to a multi-year low in December (2.1%), it jumped in January to 2.6%. However, the spike in inflation in January was largely driven by a base effect stemming from the one-off fall in telecom prices in January 2015. Despite the increase, inflation remained below the Central Bank’s target of 3.0%.

The closely watched core consumer prices—which exclude volatile categories such as fresh food and energy—rose 0.19% in January over the previous month, which was down from December’s 0.31% increase. Core inflation rose from 2.4% in December to 2.6% in January.

Analysts consider that inflation will continue to rise in the coming months due to the fading of one-off effects related to the disappearance of long-distance tariffs and discounts on mobile phone tariffs implemented in December and January 2015. Moreover, the sharp depreciation of the Mexican peso in recent weeks could add further pressure on consumer prices.

The Central Bank (Banxico) expects inflation to rise gradually through 2016 and converge on its inflation target of 3.0% at the end of 2016. Panelists surveyed for this month’s LatinFocus Consensus Forecast expect inflation to end 2016 at 3.3%, which is down 0.1 percentage points over last month’s forecast. For 2017, the panel sees year-end inflation at 3.3%.