Itaú BBA - MEXICO – Inflation in November slowed down due to the “Buen Fin”

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MEXICO – Inflation in November slowed down due to the “Buen Fin”

December 9, 2020

A fall in non-core fruits and vegetable prices also exerted downward pressure.

Headline and core inflation were slightly below market expectations. CPI increased 0.08% month-over-month in November (from 0.81% a year ago), below our forecast of 0.11% and market expectations of 0.15% (as per Bloomberg). In turn, core inflation stood at -0.08%, also below our forecast (-0.05%) and market expectations of -0.04%. Downside pressure came mainly from core non-food goods prices (-0.78%) due to the “Buen Fin” effect (Mexico’s black Friday) and a fall in non-core fruits and vegetable prices (-3.10%). 

Annual core inflation was pressured down mainly by the “Buen Fin” effect in November. On an annual basis, headline inflation decelerated to 3.33% in November (from 4.09% in October), while core inflation slowed down to 3.66% (from 3.98%). Core inflation was driven down mainly by core non-food goods prices (“Buen Fin” effect), which slowed down to 3.06% (from 3.85%), while food prices decelerated at a slower pace (6.79%, from 6.93%) and services inflation (2.22%, from 2.40%) slowed down further amid the wide negative output gap. We note that in the 2H of November the “Buen Fin” (November 9-20) effect was still present as shown in our inflation heat map below. In fact, clothes annual inflation, items related to the “Buen Fin” discount strategy, fell by 1.51% in 2H November (from -1.30% in 1H November), while core non-food goods CPI excluding clothes items and without excluding them stood at 4.00% (from 4.02%) and 3.64% (from 3.68%), respectively.

At the margin, headline and core inflation also decelerated. Using seasonally adjusted three-month annualized figures, the CPI stood at 0.65% in November (from 4.17% in October), while core CPI stood at 2.35% (from 3.88%).

We now expect inflation at 3.6% for yearend 2020 after November’s downside inflation surprise. Next year we expect lower inflation (3.2% year-end) driven by a still wide negative output gap and stronger currency.

Julio Ruiz

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