Headline CPI increased 0.71% mom in December, above our forecast of 0.66% and market consensus of 0.62% (as per Bloomberg). The main upward pressure came from volatile fruits & vegetables prices which stood at 7.05% (vs our call of 5.57%). In contrast, core inflation stood at 0.44% mom, a bit below our forecast and market consensus – both at 0.49%. Within core inflation, other core services stood at 1.02%, reflecting upside pressure from tourism-related prices in the 1H of December (1.21% bw/bw) but easing in the second half of the month (-0.39% bw/bw). Core goods food & non-food inflation eased further. Annual headline inflation rebounded to 4.66% in December (from 4.32% in November), reflecting the pressure from volatile fruits and vegetables prices in the non-core index, while core annual inflation fell to 5.09% (from 5.30%). At the margin, the seasonally adjusted three-month annualized headline inflation stood at 6.12% in December (from 5.12% in November), while core inflation eased to 4.79% (from 5.25%).
Our take: Given that the upside surprise in today’s headline inflation figure came mainly from the non-core volatile part of the index and that core inflation was a bit below market expectations, we think that it should not change Banxico’s view of a first rate cut in 1Q24. 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 at 9.00%.
See detailed data below
