Itaú BBA - MEXICO – June’s CPI slowed down, but with core inflation accelerating

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MEXICO – June’s CPI slowed down, but with core inflation accelerating

julio 9, 2019

Core inflation still uncomfortable

June’s CPI came in line with market expectations, pulled down by non-core CPI. Consumer prices grew 0.06% month-over-month in June (from 0.39% a year ago), slightly below our forecast of 0.07% and in line with market expectations. CPI was pulled down by non-core CPI (-0.68%, from 0.84% a year ago), associated to a fall in energy prices (-1.55%) and fruits and vegetables (-1.58%). In turn, core inflation stood at 0.30% (from 0.23% a year ago).

On an annual basis, headline inflation slowed down, pulled down by energy prices, but with core inflation accelerating. Headline inflation slowed to 3.95% year-over-year in June (from 4.28% in May), crossing the upper bound of the range around central bank’s target. However, core inflation accelerated somewhat to 3.85% in June (from 3.77% in May), with both tradables (3.92%, from 3.82%) and services (3.75%, from 3.69%) accelerating. In contrast, non-core inflation fell to 4.19% year-over-year in June (from 5.78% in May), pulled down by energy prices (2.51%, from 6.51%), while non-core food inflation stood at 6.23% (from 6.08%).

At the margin, headline inflation also slowed down, while core inflation accelerated. Using seasonally adjusted three-month annualized figures, headline inflation decelerated to 4.49% in June (from 5.45% in May), while core index accelerated to 4.27% in June (from 3.99% in May). The diffusion index, which tracks the percentage of items in the CPI basket with annual inflation higher or equal to four, decreased slightly to 50.2% in June (from 50.9% in May).

We expect inflation to end 2019 at 3.7%. While core CPI accelerated (one of Banxico’s main concern), its 2Q19 annual rate was in line with Banxico’s forecast (3.8%) in its latest inflation report. Still, we think the central bank will want to see more information to be comfortable and start an easing cycle. Moreover, the uncertainties over Mexico’s economy continue to constitute upside risks for inflation (through a weaker currency). 

Julio Ruiz

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