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Mexico Inflation February 2018

Mexico: Inflation moderates for second consecutive month in February

Consumer prices rose 0.38% from the previous month in February, well below the 0.53% increase recorded in January and the second consecutive deceleration in month-on-month consumer price growth. The slowdown stemmed mostly from softer price increases in energy and a sizeable decrease in food prices, which partially offset rising prices for core goods and services. Nonetheless, the monthly increase in core prices came in largely in line with market expectations and suggested pass-through effects from a weakened peso remain contained.

Inflation eased for a second consecutive month and by slightly more than expected in February, coming in at 5.3% versus market expectations of 5.4%. The headline number was below the 5.5% print recorded in January and reflected a second consecutive month of decelerating food inflation. Liquified gas price inflation also moderated markedly in February, partially muting another increase in gasoline prices. A moderation in global oil prices should see current dynamics in gasoline prices faltering, while a base effect should cause agricultural price pressures to soften further in upcoming months.

The core consumer price index—which excludes volatile categories such as fresh food and energy—rose 0.49% in February from the previous month, above the 0.28% increase recorded in January. Core inflation slowed three-tenths of a percentage point to 4.3% in February, with lower core good inflation leading the way yet again amid softer peso-induced pressures. Rapidly declining producer inflation should see core price pressures moderating further in H1. Core services, however, was stickier in February, steady at 3.5%.

The stronger-than-expected deceleration in headline inflation should ease some pressure on Banxico to continue hiking rates to contain second-order inflationary pressures and a de-anchoring of inflation expectations. The minutes of the 8 February monetary policy meeting showed that authorities will look at actual inflation to determine future policy movements. In that regard, February’s CPI result goes a long way, as it suggests that the weakening of the peso late last year has had a limited impact on pricing behavior and that non-core pressures are behaving better this year.

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