The bi-weekly headline inflation stood at 0.27%, above market consensus of 0.25% (as per Bloomberg) and our 0.06% forecast. While volatile fruits & vegetables and gas lp prices exerted relevant downward pressures to the headline print, these were more than offset by upside pressure from core inflation which surprised to the upside (0.33% versus market consensus of 0.27% and our call of 0.24%). The main upward pressure to core inflation came from other services inflation which stood at 1.03% (versus our call of 0.41%) driven mainly by tourism related prices (such as airfares and tourism packages) as we get closer to easter holidays and also some pressure from restaurants. Other services excluding tourism related prices stood at a more benign figure of 0.35% bw/bw. We note tourism related prices are volatile in which sharp upside pressures tend to revert quickly. On the positive side, core goods inflation eased further to 0.10% bw/bw (from 0.26% a year ago). Annual headline inflation stood at 4.48% in 1H March (from 4.35% in 2H February), while core annual inflation stood at 4.69% (from 4.66%). At the margin, assuming bi-weekly inflation in line with the five-year median in the second half of March, the seasonally adjusted three-month annualized headline inflation stood at 3.73% in March (from 6.00% in February), while core inflation stood at 4.68% (from 4.42%).
Our take: While on the surface today’s inflation number is not great for Banxico, the fact that the main upward pressure came from volatile tourism related prices, which tends to revert relatively quickly, should not turn Banxico hawkish after this number. Our base case remains for Banxico to continue cutting its policy rate by 25-bp in each of the meetings during the rest of the year, reaching an end of year level of 9.50%. However, we cannot rule out pauses in the easing cycle, amid lingering risks to inflation. We still have three more inflation releases before the May 9 monetary policy meeting.
See detailed data below
