Itaú BBA - MEXICO – Headline and core inflation decelerated slightly in the 1H of May

Macro Latam

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MEXICO – Headline and core inflation decelerated slightly in the 1H of May

mayo 23, 2019

Headline inflation is still above the upper bound of the range around central bank’s target

CPI was pulled down by seasonal electricity subsidies. Mexico’s CPI posted a bi-weekly rate of -0.30% in the first half of May (from -0.29% a year ago), in line with our forecast and below median market expectations of -0.25% (as per Bloomberg). CPI was pulled down by a fall in non-core energy prices (-3.87%, from -3.00% year ago) mainly due to a sharp decline in electricity prices due to the implementation of a seasonal “summer” subsidy. In turn, core CPI grew 0.09% (from 0.13% a year ago), pressured by tradable prices (0.13%, from 0.06% a year ago), while core services decelerated (0.05%, from 0.18% a year ago). 

On an annual basis, headline and core inflation decelerated slightly. On an annual basis, headline inflation decelerated to 4.43% in the 1H of May (from 4.44% in the 2H of April), still above the upper bound of the range around central bank’s target, with core CPI decelerating to 3.77% (from 3.81%), mainly due to core services (3.70%, from 3.84%), while tradables accelerated somewhat (3.80%, from 3.74%). In turn, non-core inflation accelerated (6.41%, from 6.39%), with non-core food inflation accelerating to 6.62% (from 5.66%), while energy prices decelerated to 7.52% (from 8.48%). 

At the margin, headline inflation accelerated. Assuming bi-weekly inflation in line with the 5-year median variation in the second half of May, we estimate that seasonally-adjusted three-month annualized inflation stood at 5.75% in May (from 3.11% in April) for the CPI and 3.79% (from 3.70% in April) for the core index. Also, we note that the diffusion index, which tracks the percentage of items in the CPI basket with annual inflation higher or equal to four, increased to 52.3% in the 1H of May, up from 45.3% in the 2H of April. 

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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