Itaú BBA - MEXICO – Lower headline and core inflation

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MEXICO – Lower headline and core inflation

Maio 7, 2020

Fall in gasoline prices exerted downward pressure on inflation

CPI in April was in line with market expectations. Consumer prices fell by 1.01% month-over-month in March (from +0.05% a year ago), slightly below our forecast of -0.97% and in line with market expectations (as per Bloomberg). The headline figure was dragged mainly by a fall in gasoline prices (-17.35% month-over-month). In turn, core CPI stood at 0.36% month-over month (from 0.46% a year ago), below our forecast of 0.40% and above market expectations of 0.33%.

Annual headline inflation decelerated sharply dragged by a fall in gasoline prices, while core inflation also slowed down. Headline inflation stood at 2.15% year-over-year in April (from 3.25% in March), pressured down by non-core energy prices which fell by 15.20% (from -6.36%). Core inflation decelerated to 3.50% (from 3.60%), with tradables accelerating to 4.11% (from 3.83%) mainly due to food items which is likely related to shortages of some products amid distancing measures (beer increased 2.66% month-over-month), while services decelerated to 2.84% (from 3.35%) mainly due to the fall in tourism services (-21.0%) and airfare prices (-11.4%). Still, core services excluding tourism services and airfares decelerated to 3.23% (from 3.44%). We note that while core services rebounded in the 2H of April (2.95% year-over-year, from 2.74% in 1H of April) mainly due to a recovery in airfares (a biweekly increase of 2.9%), core services excluding airfares and tourism services prices also slowed down (3.15%, from 3.25%).

At the margin, headline and core inflation also decelerated. Using seasonally adjusted three-month annualized figures, the CPI fell by 0.74% in April (from 2.62% in March), while core CPI slowed down to 2.95% (from 3.22%). 

We expect inflation at 2.9% this year. The widening of output gap and low energy prices will put downward pressure on inflation, offsetting the effect on prices from the depreciation of the currency.  


Julio Ruiz



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