MexECON Blog

March Inflation Accelerates to 5.0 Percent

In a report yesterday, Mexico's March consumer price index (CPI) was up 5.0% from the same month one year earlier.  That marked an acceleration from its rise of 4.8% in the year to February, and it meant that inflation is now at its highest rate since December (see chart below).  As in recent months, the acceleration in March stemmed in large part from rising food prices.  The report, from Banco de Mexico, indicated that food prices in March were up 9.1% year-on-year.  The food products with some of the biggest price increases included tomatos and onions.

Comment:  The acceleration in food inflation is consistent with the strong pricing we have seen in our portfolio companies.  Because Mexico's "core" inflation rate (which excludes certain volatile categories, such as fresh foods) is somewhat more subdued, and because of the policymakers' continuing sense that Mexico's economic recovery is still fragile, the March inflation report is not likely to spur the central bank to raise interest rates in the near term.  However, it is important to note that Mexican inflation is now at 5.0% for only the second time since mid-2009, and a close look at the chart suggests that inflation could be on a trajectory similar to when it surged at the end of the last decade.  If price rises continue to accelerate as the economy recovers, Banco de Mexico will have to tighten monetary policy sooner rather than later, as many other countries have already done.  That prospect could put further upward pressure on the peso, but it could also cap the recent rise in Mexican asset prices.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1003

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