Mexico Inflation


Mexico: Inflation inches up in December but is expected to drop in the coming months

January 7, 2011

In December, consumer prices added 0.50% over the previous month. The figure was well below November's 0.80% increase but exceeded market expectations, which had consumer prices rising a slower 0.39%. Owing to the strong price increase, annual headline inflation closed the year at 4.4%, which was a notch above November's 4.3% reading as well as the Central Bank's target of 3.0% with a tolerance margin of 1.0%. The monthly price increase mostly reflected higher prices for food, beverages and tobacco, in particular for limes (+76.87% yoy), which are an important ingredient in the Mexican diet. The core inflation index, which excludes volatile categories such as oil, fresh fruits and vegetables, rose 0.47% over the previous month, leaving annual core inflation unchanged at 3.6%. On a separate note, a new methodology for measuring inflation will be implemented by Central Bank on January this year. Moreover, as from July, the responsibility of calculating the inflation rate will be transferred from the Central Bank to the statistical institute (INEGI), in a decision widely accepted by the market. Going forward, panellists and the Central Bank anticipate inflation to drop in the months ahead.


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