MEXICO – Higher-than-expected inflation in 1H of September

On an annual basis, inflation accelerated further in the 1H of September.

Julio Ruiz

23/09/2021


Headline inflation surprised to the upside lifted by higher food prices and energy tariff. Mexico’s CPI posted a bi-weekly rate of 0.42% (from 0.16% a year ago and compared to 5-year median of 0.22%), above our forecast and market expectations as per Bloomberg (both at 0.28%). Headline inflation was pressured up by agricultural food prices (0.92%) and gas prices (2.26%) amid the new policy to smooth price movements (which sets maximum gas prices each week). Core inflation surprised once again to the upside (0.31% versus our forecast and market expectations of 0.24% and from 0.17% a year ago) pressured mainly by core goods CPI (0.43% versus 5-year median of 0.21%).  

On an annual basis, inflation accelerated further in the 1H of September. Headline inflation accelerated to 5.87% year-over-year in 1H September (from 5.60% in 2H August), while core inflation accelerated to 4.92% (from 4.77%). Within core inflation, core goods CPI (6.27%) was pressured by both food (6.84%, from 6.57%) and non-food (5.64%, from 5.34%) prices. In turn, core services CPI stood unchanged at 3.41%.

We expect inflation at 6.0% for end of year 2021. Amid increasing inflationary pressures, we expect Banxico to hike its policy rate three more times this year (by 25-bps in each of the next meetings), reaching a level of 5.25% by yearend.



Julio Ruiz