Julio Ruiz
8/12/2022
Headline CPI increased 0.58% mom in November (from 1.1% a year ago and a five-year median figure of 0.85%), below our forecast of 0.65% and market consensus of 0.68% (as per Bloomberg). The headline figure reflects the seasonal removal of electricity tariffs which was curbed by non-core agricultural CPI and lower gas prices, while core inflation also surprised to the downside (0.45% mom versus consensus and our forecast of 0.53%). Downside pressure to core inflation came mainly from core goods non-food which was dragged by a bi-weekly rate of -0.57% in the second half of November due to Mexico’s black Friday, which should normalize in the first half of December.
Core inflation in the second half of November fell to 8.37% yoy (from 8.66% 1H November) aided by a favorable base effect from black friday (this year it took place in 2H of November, while last year was in 1H of November). However, core inflation for the full month of November increased further to 8.51% yoy (from 8.42 in October), while headline inflation kept trending down to 7.80% (from 8.41%). Looking at the core breakdown, food inflation increased further in November to a high 14.09% yoy (from 13.95% in October), while non-food and services core CPI stood at 8.13% (from 8.03%) and 5.35% (from 5.30%), respectively.
At the margin, both headline and core CPI slowed down, but still at a high level. Using seasonally adjusted figures, the three-month annualized measure of headline inflation was 5.85% in November (from 7.93% in October), while core inflation stood at 8.70% (from 9.18%).
Core inflation sub-indexes developed by the central bank, which help to break down the effect of supply (currency, wages and energy prices) and demand shocks (output gap) on prices, indicate that inflation closely associated with the output gap (fundamental inflation) remains above the upper bound of the central bank target of 4% and rising (6.96% yoy in November, from 6.86% in October). We also note that components of core inflation affected by energy commodity prices (8.31%, from 8.18%), salaries (6.32%, from 6.19%) and currency (8.03%, from 7.84%) remain in an upward trend.
We expect Banxico to slowdown the pace of rate hikes to 50-bp (from 75-bp and reaching a level of 10.50%) in the December 15 meeting.
Julio Ruiz