Itaú BBA - MEXICO – Inflation decelerated in 1H March

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MEXICO – Inflation decelerated in 1H March

Março 24, 2020

Lower energy prices pressured down inflation

Bi-weekly inflation in the first half of March was in line with market expectations. Mexico’s CPI posted a bi-weekly rate of 0.11% in the first half of March (from 0.26% a year ago), above our forecast of 0.02% and in line with market expectations (as per Bloomberg). In turn, core inflation stood at 0.16% (from 0.18% a year ago), slightly below market expectations (0.18%). 

On an annual basis, headline inflation decelerated helped by lower energy prices and the fading away of an unfavorable base effect. Headline CPI decelerated to 3.71% year-over-year in 1H March (from 3.87% in 2H February), pressured down by non-core energy prices (-2.47%, from  -1.34%), associated to a fall in gasoline prices (despite the government charging in full the gasoline excise tax)  and partly driven by the fading away of the unfavorable base effect that was present in the first two months of the year (lower VAT in the northern frontier at the beginning of 2019).  In turn, core inflation decelerated slightly to 3.60% (from 3.63%), with tradables inflation at 3.77% (practically unchanged from 2H February) and services CPI decelerating somewhat (3.42%, from 3.47%).

At the margin, headline inflation accelerated, while core inflation slowed down. Assuming bi-weekly inflation in line with the 5-year median variation in the second half of March, the seasonally-adjusted three-month annualized inflation stood at 4.45% in March (from 4.05% in February), while core inflation decelerated to 3.15% (from 3.34%).

We expect inflation to end 2020 at 3.4%. While lower energy prices and widening of slack conditions will help to put downward pressure on inflation, the depreciation of the currency may offset those gains.

Julio Ruiz

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