Itaú BBA - MEXICO – CPI surprised to the upside in the first half of April

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MEXICO – CPI surprised to the upside in the first half of April

abril 24, 2019

CPI was pressured by an increase in prices of tourism related services and airfares due to Easter holidays

CPI was above market expectations, pressured by tourism services and airfares. Mexico’s CPI posted a bi-weekly rate of -0.03% in the first half of April (from -0.35% a year ago), below our forecast of -0.19% and median market expectations of -0.18% (as per Bloomberg). CPI was pressured by Core CPI (0.40%, from 0.07% a year ago), mainly due to an increase in CPI services (0.52%, from -0.11% a year ago) associated to a price rise of tourism services and airfares due to Easter holidays. In fact, CPI core services ex-telecom and tourism related services grew 0.21% (from 0.12% a year ago). In contrast, non-core CPI posted a bi-weekly rate of -1.32% (from -1.53% a year ago), mainly due to a fall in energy prices (-2.97%).

Headline inflation accelerated on an annual basis. On an annual basis, inflation accelerated to 4.38% in the 1H of April (from 4.06% in the 2H of March), above the upper bound of the range around central bank’s target, with core CPI increasing to 3.94% (from 3.60%), mainly due to other core services prices (includes tourism related services and airfares) which grew 5.27% (from 3.91%). 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 3.78%). In turn, non-core inflation accelerated slightly (5.77%, from 5.54%), with both food and energy inflation accelerating, at to 3.88% (from 3.61%) and 8.68% (from 8.37%), respectively.

At the margin, headline and core inflation accelerated. Assuming bi-weekly inflation in line with the 10-year median variation in the second half of April, we estimate that seasonally-adjusted three-month annualized inflation stood at 2.85% in March (from 0.35% in March) for the CPI and 3.82% (from 2.76% in March) for the core index. However, core services excluding telecom, tourism related services, and airfares, accelerated at a slower pace (4.32%, from 3.83%). The diffusion index, which tracks the percentage of items in the CPI basket with annual inflation higher or equal to four, was 47.9% in the 1H of April, up from 44.9% in the 2H of March, but down from 50.18% by yearend 2018.



 

We expect inflation to end 2019 at 3.6%. Although inflation accelerated sharply, it was partly due to a hike of tourism related services due to Easter Holidays, an effect that should fade away in the coming figure. 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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