MexECON Blog

April Inflation Slows to 4.3 Percent

In a recent report, Mexico's April consumer price index (CPI) was up 4.3% from the same month one year earlier.  That marked a significant improvement from the rise of 5.0% in the year to March.  The decline in inflation last month stemmed in large part from a pullback in food prices, which had jumped earlier this year.  The report showed the subindex on agricultural products was up just 3.7% year-over-year, versus an increase of 9.1% in the year to March.  The products with the biggest price declines included tomatoes, potatoes, pumpkin, and onion.  There was also a slowdown in "core" inflation, which excludes fresh foods and centrally administered prices.

Comment:  Because of a perception that Mexico's economic recovery is still not self-sustaining, policymakers at Banco de México are reluctant to start raising interest rates.  The decline in inflation during April will likely help ensure that they can keep rates low for a while yet.  If the central bank looks set to hold interest rates at their current low levels, the peso could lose some support.  Indeed, the currency has pulled back so far in May, though the main reason for that is probably renewed concern about a European debt default.  On a more positive note, continued low interest rates could juice the Mexican economic recovery and help thaw the country's domestic credit markets.

Patrick Fearon, CFA
Vice President, Fund Management

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