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Downside pressure came mainly from the reversal of agricultural prices
2024/02/22 | Julio Ruiz

Headline CPI fell by 0.10% bw/bw in 1H February, below our forecast of 0.04% and market consensus of 0.13% (as per Bloomberg). Downside pressure in headline inflation came mainly from the non-core index. Agricultural prices fell by 7.20% (versus our call of -4.37%) which more than offset relevant upside pressure from energy prices (mainly gas lp). Core inflation also surprised slightly to the downside (0.24% bw/bw versus our call and consensus estimate both at 0.28%). Core inflation easing was driven mainly by core goods, while core services eased at a slower pace. A positive result from core services is that the seasonal increase in education prices is easing relative to previous years (0.30% vs a year ago 0.60% and vs 10-year median of 0.18%). A fall in air tariffs (-5.48%) also exerted relevant downward pressure to the other services index. Annual headline inflation fell to 4.45% in 1H February (from 4.87% in 2H January), while core inflation fell to 4.63% (from 4.75%).  At the margin, assuming bi-weekly inflation in line with the five-year median in the second half of February, the seasonally adjusted three-month annualized headline inflation stood at 6.20% in February (from 7.32% in January), while core inflation stood at 4.35% (from 4.62%).


Our take: Today’s inflation figures is supportive for a 25-bp rate cut in March (our base scenario), considering core inflation eased further and non-core is receding. Upside pressure in the latter was the reason why Banxico increased their headline inflation forecast in the short term in February’s monetary statement. Our end of year policy rate forecast is at 9.50%.


See detailed data below