Itaú BBA - MEXICO – Inflation rises by less than expected in May

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MEXICO – Inflation rises by less than expected in May

Junho 9, 2020

The downside surprise in inflation was driven by a contraction in core goods ex-food prices

CPI in May was below market expectations, driven by a contraction in core goods ex-food prices. Consumer prices grew 0.38% month-over-month in May (from -0.28% a year ago), below our forecast of 0.55% and market expectations of 0.53% (as per Bloomberg). Likewise, core inflation was below market expectations (0.30%, compared to our forecast of 0.44% and Bloomberg market expectations of 0.41%). The downside surprise came mainly from core goods ex-food prices, falling 0.31% (compared to 5-year median of 0.14%).

Annual headline and core inflation accelerated in May. Annual headline inflation stood at 2.84% year-over-year in May (from 2.15% in April) and core inflation increased to 3.64% (from 3.50%). While core inflation was pressured by food prices (6.58%, from 5.78%) due to consequences of the outbreak, core goods ex-food prices decelerated sharply (1.88%, from 2.34%) despite a weaker peso. In turn, core services stood at 2.93% (from 2.84%). Moreover, non-core CPI accelerated to 0.35% (from -1.96%), pressured by an increase in gasoline and agro prices.

At the margin, headline and core inflation also accelerated. Using seasonally adjusted three-month annualized figures, the CPI accelerated to 2.04% in May (from -0.85% in April), while core CPI stood at 3.86% (from 3.00%).

We expect inflation at 2.9% this year. The widening of the negative output gap will put downward pressure to inflation. Moreover, upward pressures to inflation from supply disruptions amid the outbreak should moderate as distancing measures are relaxed, while the recent appreciation of the currency (if sustained) will help to curb inflationary pressures. 

Julio Ruiz

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