MexECON Blog

December CPI Rises 4.4 Percent YOY

In a report from Banco de México late last week, Mexico's December consumer price index (CPI) was up 4.4% from the same month one year earlier.  That marked the third straight month of worsening inflation, after year-over-year increases of 4.3% in November, 4.0% in October, and 3.7% in both September and August.  Inflation in Mexico is now at its highest since last March.  As in recent months, the acceleration in December stemmed largely from rapidly rising food prices.  Excluding the volatile categories of food, energy, and administratively-determined prices, the December core CPI was up just 3.6% year-over-year, matching the increases in each of the previous two months.  The December producer price index (PPI) was up 3.7%, after year-over-year increases of 3.4% in November and 3.3% in October.

Comment:  Inflation is accelerating again in Mexico, just as it is in many other fast-growing emerging markets.  Mexican inflation spiked for a time in early 2010, only to recede again, but because of the recent excess liquidity in the developed countries and continued strong economic growth in Mexico, there is now a greater risk that Mexican inflation could stay elevated longer than previously expected.  That would make it difficult for policymakers at Banco de México to reach their goal of cutting inflation to 3.0% by the end of 2011.  If inflation pressures remain high, the policymakers may have to raise interest rates earlier than many observers now expect, and that would raise the risk of the currency strengthening too much or economic growth slowing excessively.

Patrick Fearon, CFA
Vice President, Fund Management

            Mexico's Consumer Price Index (CPI)
                  Percent Change, Year-Over-Year
                       Source:  Banco de Mexico
CPI 1012

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