Headline CPI increased 0.48% mom in July, broadly in line with market consensus of 0.49% (as per Bloomberg) and our forecast of 0.50%. Core inflation (0.39%) was also broadly in line with our 0.43% forecast and market consensus of 0.42%. Within non-core CPI, gas (-4.25%) and egg (-6.23%) prices exerted relevant downward pressure which mitigated price increases from volatile fruits & vegetables (5.50%). Air tickets (16.99%) and tourism packages (6.77%) exerted relevant upward pressure to core services CPI in the month, associated to summer vacations. Annual headline inflation fell further to 4.79% in July (from 5.06% in June) aided by the non-core index which fell by 0.67% (from -0.36%) and core goods CPI which stood at 9.79% (from 10.49%). However, services inflation remained practically unchanged at 5.24% yoy in July, relative to the previous month. At the margin, using seasonally adjusted figures, the three-month annualized measure of headline inflation stood at 2.49% in July (from 2.14% in June), while core prices stood at 3.88% (from 3.80%) – both within the central bank target of 3%+/-1%.
Our take: Our 2023 yearend inflation forecast stands at 4.5% (7.8% by the end of 2022) aided by a strong currency and lower commodity prices. In our view, high core inflation remains elevated, leading the central bank to maintain the policy rate at 11.25% in the policy meeting this week (Thursday August 10). However, as inflation eases more clearly towards the end of the year, we expect Banxico to begin an easing cycle with two 25-bp rate cuts (November and December) in the last quarter of the year, ending 2023 at 10.75%.
See detailed data below