Itaú BBA - MEXICO – Core inflation accelerated in April, pressured by a Easter effect

Macro Latam

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MEXICO – Core inflation accelerated in April, pressured by a Easter effect

mayo 9, 2019

The Easter effect partially faded away in the 2H of April

April’s CPI was broadly in line with market expectations. Inflation stood at 0.05% month-over-month in April (from -0.34% a year ago), broadly in line with our forecast and market expectations (as per Bloomberg) of 0.06%. CPI was pressured by Core CPI (0.46%, from 0.15% a year ago), mainly due to an increase in CPI services (0.56%, from -0.01% a year ago) associated to a price rise of tourism services and airfares due to Easter holidays in the first half of April, which partially faded away in the second half of the month. Airfares and tourism related services CPI increased 27.19% and 12.47% in the first half of April, respectively, compared to  -16.77% and -6.81% in the second half of April. In turn, non-core CPI fell 1.15% (from -1.72% a year ago), mainly due to a fall in energy prices (-3.32%). 

Headline inflation accelerated on an annual basis, pressured by tourism services and airfares. Headline inflation accelerated to 4.41% year-over-year in April (from 4.00% in March), above the upper bound of the range around central bank’s target. Looking at the breakdown, core CPI increased to 3.87% (from 3.55%), mainly due to other core services prices (includes tourism related services and airfares), which grew 4.98% (from 3.79%). However, a cleaner indicator for prices driven by domestic demand, core services excluding telecom, tourism related services and airfares, accelerated at a slower pace (3.89%, from 3.75%). Also, we note that during the second half of April other core services decelerated to 4.70% year-over-year (from 5.27% in the 1H of April). In turn, non-core inflation accelerated somewhat in April (6.08%, from 5.47%), with both food and energy inflation accelerating, at 4.77% (from 3.70%) and 8.58% (from 8.15%), respectively.

At the margin, headline and core inflation accelerated. Using seasonally adjusted three-month annualized figures, headline inflation accelerated to 2.96% in April (from 0.36% in March), while core index accelerated to 3.58% (from 2.78% in March). The diffusion index, which tracks the percentage of items in the CPI basket with annual inflation higher or equal to four, was 47.5% in April, up from 45.3% in March, but down from 50.6% by yearend 2018.

We expect inflation to end 2019 at 3.6%. However, the lingering uncertainties surrounding Mexico’s economy continue to constitute upside risks for inflation (through a weaker currency).

Julio Ruiz

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