Itaú BBA - MEXICO – Another higher-than-expected inflation number in 1H September

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MEXICO – Another higher-than-expected inflation number in 1H September

September 24, 2020

Core goods inflation continues to be at a high level

Headline inflation in the first half of September was above market expectations. Mexico’s CPI posted a bi-weekly rate of 0.16% (from 0.17% a year ago), above our forecast of 0.09% and market expectations of 0.10% (as per Bloomberg). Meanwhile, core inflation stood at 0.17% (compared to our forecast of 0.12% and market expectations of 0.18%). 

High inflation continues to be driven by core goods prices. Headline annual inflation stood at 4.10% in 1H September (practically unchanged from 2H August), with core inflation at 3.99% (also practically unchanged from last reading). Within core inflation, core goods CPI (a concern expressed by some Banxico members) continues to grow above the upper bound around the central bank’s inflation target (5.36%, from 5.41%), with processed food inflation at a high 6.98% (from 7.06%) and other goods at 3.62% (from 3.66%). Meanwhile, core services annual inflation stood practically unchanged at 2.50% in 1H September, compared to 2H August. Within core services, education (2.17%, from 2.97%) and housing (2.21%, from 2.27%) inflation decelerated further. However, other services inflation, which has been accelerating since 1H July (1.94%), stood at 2.83% in 1H September driven mainly by the component of small restaurants, likely associated to the easing of distancing measures.

At the margin, headline and core inflation slowed down in September, but continue at high levels. Assuming bi-weekly inflation in line with the 5-year median variation in the second half of September, the seasonally-adjusted three-month annualized inflation decelerated to 5.38% in September (from 6.64% in August), while core inflation stood at 4.70% (from 5.02%).

We expect inflation at 3.8% for year-end 2020.  

Julio Ruiz

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