MexECON Blog

October CPI Rises 3.2 Percent YOY

Mexico's October consumer price index (CPI) was up 3.2% from the same month one year earlier, in line with the year-over-year increases of 3.1% in September and 3.4% in August.  According to the report, from the official statistics agency INEGI, the modest acceleration in October was fairly broad-based.  Excluding the volatile categories of fresh foods, energy, and administratively-determined prices, the October "core" CPI was also up 3.2% year-over-year, compared with a rise of 3.1% in the year to September.

At the wholesale level, inflation continued to accelerate far beyond the experience at the retail level.  The October producer price index (PPI) increased a strong 8.3% year-over-year, up from a revised rise of 7.6% in September.  Producer inflation in Mexico has now accelerated for five straight months, and it stands at its highest level in three years.

Comment:  Mexican inflation at the consumer level has the appearance of being under control, but the acceleration in the PPI is becoming worrisome.  In Mexico's last several cycles, wholesale inflation has led consumer inflation by six to eight months.  In the current cycle, wholesale inflation began to accelerate in late 2010, suggesting a surge in consumer inflation is overdue.  It is true that the recent slowdown in the world economy has pulled some commodity prices lower, and elevated unemployment in Mexico is apparently holding down wage pressures.  Nevertheless, the sharp drop in the peso during late summer is an important source of potential new inflation.  Some observers have started to predict Banco de México will soon cut interest rates to insure the economy against a slowdown in exports as the global economy weakens.  However, the inflation pressures in the pipeline suggest the central bank is more likely to keep interest rates stable unless the economy deteriorates dramatically.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1110

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