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Persistent services CPI likely to reinforce Banxico’s cautious tone on the disinflation outlook.
2023/11/09 | Julio Ruiz

Headline CPI increased 0.38% mom in October, in line with our forecast and broadly in line with market expectations of 0.39% (as per Bloomberg). Core monthly inflation reached 0.39% mom, also essentially in line with market expectations (0.38%) and our forecast of 0.41%. Core goods (0.34% vs 0.87% a year ago and 10-year median of 0.27%) continued easing but services inflation remained persistent (0.44% vs 0.33% a year ago and 10-year median of 0.25%). On the volatile non-core index, volatile fruits and vegetables prices exerted downward pressure which was mitigated by a seasonal removal of the subsidy to electricity tariffs and upside pressure from gas lp prices. Annual headline and core inflation fell further to 4.26% in October (from 4.45% in September) and 5.50% (from 5.76%), respectively. However, services annual inflation increased to 5.34% in October (from 5.23% in September). At the margin, the seasonally adjusted three-month annualized headline inflation stood at 5.64% in October (from 5.78% in September), while core inflation increased to 4.60% (from 4.27%). 


Our take:  While headline and core inflation eased further in October, persistent services inflation will likely reinforce the cautious tone of Banxico board members on the inflation outlook.  We expect the central bank to maintain its policy rate until May 2024, and then begin a gradual easing cycle. Resilient activity, an expansionary fiscal stance next year and tight external conditions also support our call.


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