The bi-weekly headline inflation in 1H January stood at 0.49%, above market consensus of 0.38% (as per Bloomberg), but closer to our forecast of 0.50%. The main upward pressure came from volatile fruits & vegetables prices which stood at 4.95% (vs our call of 4.37%). Core bi-weekly inflation stood at 0.25%, in line with market consensus (our call was at 0.31%). Core goods food wasn’t affected significantly by the update in the excise tax for sugary food & drinks and tobacco, reaching 0.35% (vs our call of 0.71%). While services inflation eased (0.24% versus a year ago of 0.30% and 10-year median of 0.00%), it was aided mainly by a fall in airfares and tourism packages (total contribution to headline CPI of -7-bp). Annual headline inflation stood at 4.90% in 1H January (from 4.86% in 2H December), while core annual inflation fell to 4.78% (from 4.98%). At the margin, assuming bi-weekly inflation in line with the five-year median in the second half of January, the seasonally adjusted three-month annualized headline inflation stood at 7.37% in January (from 6.25% in December), while core inflation stood at 4.32% (from 4.78%).
Our take: Today’s figure shouldn’t change Banxico’s view of a first rate cut in 1Q24 given that the main upside pressure came from the volatile non-core index fruits & vegetables, while core inflation was in line with expectations. However, we note the services index breakdown continues to be pressured. Our base case remains that a first rate cut will take place on March with a magnitude of 25-bp, while our end of year policy rate forecast is at 9.00%.
See detailed data below
