Itaú BBA - MEXICO – Inflation picked up in 1H December, reflecting the end of “El Buen Fin”

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MEXICO – Inflation picked up in 1H December, reflecting the end of “El Buen Fin”

December 23, 2020

The numbers confirm that the effect of Black Friday on November inflation was transitory

Headline and core inflation above market expectations. Mexico’s CPI posted a bi-weekly rate of 0.34% (from 0.35% a year ago), above our forecast of 0.19% and market expectations of 0.28% (as per Bloomberg). Likewise, core inflation stood at 0.52% also above our forecast (0.36%) and market expectations of 0.41%. The acceleration of core inflation is associated to a rebound in prices for non-food core goods due to the end of “El Buen Fin” (Mexico’s Black Friday). On the other hand, non-core inflation came in at 0.23% due to lower fruits and vegetables prices. 

Headline inflation remained almost unchanged on an annual basis, while core accelerated, standing at a high level. Headline annual inflation hit 3.22% in 1H December, almost unchanged from 3.23% in 2H November, while the annual core reading reached 3.81%, up from 3.64% in 2H November. Looking at the breakdown, core goods inflation accelerated to 5.52% yoy (from 4.98%), while services decelerated to 1.95% yoy from 2.20% in the previous fortnight. The annual non-core reading slowed down to 1.45% (from 1.99% in 2H November), mostly due to a fall in food prices.

In all, the numbers confirm that the effect of Black Friday on November inflation was transitory. Looking ahead the wide output gap combined with the recent exchange rate strengthening should dominate the inflation dynamics, leading the central bank to resume the easing cycle in the next policy meeting (February 2021). In fact, the behavior of service inflation (now standing below the lower bound around the central bank’s target) already reflects the effect from the deep recession on inflation. 

Julio Ruiz



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