Mexico Inflation October 2016


Mexico: Inflation rises above target in October

November 19, 2016

Consumer prices rose 0.61% from the previous month in October, which followed a similar increase in September. The result was a touch less than the 0.65% increase the markets had expected and reflected the unwinding of electricity subsidies, which caused energy prices to jump.

Inflation rose from 3.0% in September to 3.1% October, coming in above the Central Bank’s target of 3.0% for the first time since April 2015. This was in line with the Bank’s view that inflationary pressures are mounting.

Meanwhile, the closely-watched core consumer price index—which excludes volatile categories such as fresh food and energy—increased 0.28% in October from the previous month, which came in below the 0.48% rise in September. As expected, prices for core goods, which are the most likely to rise on a weak currency, led the monthly increase. Core inflation was unchanged at September’s 3.1% in October.

Inflation is expected to continue rising through the final quarter of 2016 in response to the sharp peso depreciation and the intensification of the effect of the currency pass-through on consumer prices.

In its Quarterly Inflation Report from November, Mexico’s Central Bank revised its inflation forecasts for this year and next and now expects it now to end both years “slightly above” its 3.0% target, but to remain below the upper bound of the target range (4.0%). The upward revision to the forecasts was motivated by expected FX pass-through. In previous reports, the Bank had forecasted inflation to then end 2016 below but close to 3.0%, while for 2017 the monetary authority had forecasted inflation to stabilize and end the year close to the target. Panelists surveyed for this month’s LatinFocus Consensus Forecast expect inflation to end 2016 at 3.2%, which is up 0.1 percentage points over last month’s forecast. For 2017, the panel sees year-end inflation at 3.4%.

Author:, Senior Economist

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Mexico Inflation Chart

Mexico Inflation October 2016

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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