Itaú BBA - MEXICO – Headline and core inflation slowed down in March

Macro Latam

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MEXICO – Headline and core inflation slowed down in March

Abril 7, 2020

Lower inflation driven by a fall in gasoline prices

Monthly inflation in March was below market expectations. Consumer prices fell by 0.05% month-over-month in March (from 0.39% a year ago and 5-year median of 0.38%), below our forecast of -0.01% and below market expectations of 0.06% (as per Bloomberg). Headline inflation was dragged mainly by a fall in energy prices (-4.17%), while core inflation stood at 0.29% (from 0.34% a year ago and 5-year median).

Annual headline inflation decelerated, dragged by a sharp fall in non-core energy prices. Annual headline inflation slowed down to 3.25% in March (from 3.70% in in February), driven mainly by a fall in energy prices (-6.36%, from -0.54%) due to a fall in gasoline prices, while non-core food prices accelerated to 9.96% (from 7.82%).  In turn, core inflation decelerated slightly to 3.60% year-over-year (from 3.66%), with tradable goods remaining practically unchanged at 3.83% (compared to last month), while services sector slowed down to 3.35% (from 3.48%) driven by other services (3.47%, from 3.72%) which is associated to a fall in tourism packages (-0.9%, from 1.5%) and airfares (-0.8%, from 8.2%). Other services excluding airfares and tourism packages was somewhat higher, but still decelerated  (3.54%, from 3.72%).

We expect inflation for 2020 at 3.2%. Lower energy prices and widening of output gap will put downward pressure on inflation, offsetting the depreciation of the currency. 

Julio Ruiz

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