MEXICO – Inflation accelerated further in September

We expect two more rate hikes (of 25-bps) this year amid high inflation

Julio Ruiz


CPI increased 0.62% month over month in August (from 0.23% a year ago and 5-year median figure of 0.31%), broadly in line with our forecast and market expectations of 0.61%. (as per Bloomberg).  Core inflation stood at 0.46% (from 0.32% a year ago and 5-year median of 0.32%), in line with our forecast and broadly in line with market expectations of 0.47%. Upward pressure to headline inflation came mainly from core goods inflation and non-core food and energy prices (particularly from gas LP prices: 4.73%, despite a new policy dictating prices for the sector).

On an annual basis, headline inflation accelerated to 6.00% in September (from 5.59% in August), while core inflation increased to 4.92% (from 4.78%). Core inflation was driven by core CPI goods (6.26%, from 5.99%), while core services CPI remained practically unchanged at 3.43%. Within core CPI goods, food inflation stood at a high 6.87%, while non-food inflation was 5.59%.

At the margin, headline and core inflation remained at a high level. Using seasonally adjusted figures, the three-month annualized measure of headline inflation stood at 4.97% in September (from 4.91% in August), while core inflation stood at 5.70% (from 6.08%).

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 (output gap) shocks on prices, show inflation closely associated to the output gap (fundamental inflation) is above the central bank target. We also note that the parts of core inflation affected by energy commodity prices and currency stand above the upper bound of the range around the target.

High inflation is consistent with our view of the central bank hiking its policy rate by 25-bps two more times this year (November and December), reaching a level of 5.25% by the end of this year.

Julio Ruiz