Itaú BBA - MEXICO – May’s CPI was below market expectations, but remained high

Macro Latam

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MEXICO – May’s CPI was below market expectations, but remained high

junio 7, 2019

On an annual basis, headline and core inflation decelerated to still-high levels

May’s CPI came in below market expectations. Consumer prices fell by 0.29% month-over-month in May (from -0.16% a year ago), below our forecast and market expectations (as per Bloomberg) of -0.22%. CPI was pulled down by non-core CPI (-1.66%, from -1.38% a year ago) associated to a decline in electricity prices due to seasonal “summer” subsidies to electricity tariffs, while non-core food exerted some upward pressure due to an increase in chicken prices as local production decreased amid avian flu outbreaks. In turn, core inflation was 0.16% (from 0.26% a year ago).

On an annual basis, both headline and core inflation decelerated in May. Headline inflation slowed down to 4.28% year-over-year in May (from 4.41% in April), still above the upper bound of the range around central bank’s target. Looking at the breakdown, core CPI decelerated to 3.77% (from 3.87%), with core services prices slowing down to 3.69% (from 3.97%). Meanwhile, core tradable inflation increased somewhat to 3.82% (from 3.74%). In turn, non-core inflation decelerated in May to 5.78% (from 6.08%), with food inflation accelerating to 6.08% (from 4.77%), while energy prices decelerated sharply to 6.51% (from 8.58%).


However, at the margin, headline and core inflation accelerated. Using seasonally adjusted three-month annualized figures, headline inflation accelerated to 5.38% in May (from 3.07% in April), while core index accelerated to 3.83% in May (from 3.69% in April). The diffusion index, which tracks the percentage of items in the CPI basket with annual inflation higher or equal to four, increased to 50.9% in May, up from 47.54% in 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). In particular, the potential implementation of tariffs would put the central bank in a more challenging situation, of weaker growth and high inflation.  


Julio Ruiz

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