Itaú BBA - Lower-than-expected inflation in Mexico

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Lower-than-expected inflation in Mexico

January 10, 2019

We expect annual inflation to end 2019 at 3.8%

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Mexico

Inflation came in at 0.70% mom in December, below our forecast (0.86%) and market expectations (0.73%). We note that the monthly inflation print for December was 21 bps above its 5-year median variation. Looking at the breakdown, core prices increased 0.47% in the month, pressured mainly by aero transportation tariffs, which posted a 33.24% monthly increase (although seasonality pressures this item in early December, the increase was higher than the 5-year median rate of 19.70%). On the other hand, non-core prices posted a monthly increase of 1.40% in the same period, pressured mainly by non-core fruits and vegetables, which grew 7.64% (compared with a 5-year median rate of 3.55%).

We expect annual inflation to end 2019 at 3.8%. Energy prices are expected to pressure the CPI significantly less than in 2018, as oil prices fall. However, risks for the currency remain high, which could curb the disinflation pace.
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Peru

Day ahead: The Central Bank of Peru (BCRP) will publish its January’s monetary policy decision. We expect the reference rate to remain unchanged at 2.75%. While the central bank seems more comfortable with 4Q18 economic activity figures, after a short-lived deceleration in the 3Q18, we think they will wait before removing stimulus (given well-behaved inflation), and have more clarity on the economic outlook. Moreover, the BCRP president recently said that if the central bank hikes in 2019, it would be in reaction to a significant demand shock affecting inflation, which is not seen at the moment.



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