Headline CPI increased 0.25% bw/bw in 1H September, broadly in line with both - market consensus of 0.27% (as per Bloomberg) and our forecast. Core inflation, which stood at a bi-weekly rate of 0.27%, was also broadly in line with market consensus of 0.25% (our forecast was at 0.24%). Core inflation was pressured by a seasonal adjustment in education prices which was above seasonal parameters (2.91% versus 5-year and 10-year median of 1.91% and 1.99%, respectively), which was mitigated by the rest of core CPI subindexes. On the non-core CPI, there was some pressure from volatile agricultural prices which grew 0.54%, while gas lp prices, which pressured the August CPI figure, eased in 1H September, falling by 2.18%. Annual headline and core inflation fell further to 4.44% in 1H September (from 4.60% in 2H August) and 5.78% (from 5.96%), respectively. Core services annual inflation also eased to 5.08% in 1H September (from 5.11% in 2H August), but at a slower pace than core goods inflation (6.35%, from 6.66%). At the margin, assuming bi-weekly inflation in line with the five-year median in the second half of September, the seasonally adjusted three-month annualized headline inflation stood at 5.67% in September (from 4.17% in August), while core inflation stood at 4.19% (from 3.71%).
Our take: Our 2023 yearend inflation forecast still stands at 4.5%. In our view, Banxico will begin an easing cycle with a 25-bp rate cut in December 2023 (reaching an end of year level of 11.00%). However, given the resilience of activity and the stickiness of core services inflation, we cannot rule out a skip in the first meeting of 2024, or even a delay in the beginning of the easing cycle to February 2024. We note - both headline and core inflation seem to be broadly consistent (slightly lower) with the implied Banxico forecast for September (their 3Q23 estimate) at 4.68% and 5.88%, respectively.
See detailed data below