MexECON Blog

November CPI Rises 3.5 Percent YOY

Mexico's November consumer price index (CPI) was up 3.5% from the same month one year earlier, according to a report today from the official statistics agency INEGI.  That marked the second straight month of accelerating inflation, after year-over-year increases of 3.2% in October and 3.1% in September.  It also brought Mexico's inflation rate to its highest level since July.  The acceleration in November stemmed primarily from increased prices for food and energy.  Excluding the volatile categories of fresh foods, energy, and administratively-determined prices, the November "core" CPI was up just 3.3% year-over-year, after increases of 3.2% in October and 3.1% in September.

At the wholesale level, inflation continued to accelerate far beyond the experience at the retail level.  The November producer price index (PPI) surged 9.2% from the same month one year earlier, after a year-over-year gain of 8.3% in October.  Producer inflation in Mexico has now accelerated for six straight months, and it stands at its highest level since July 2008.

Comment:  Last month, I predicted the continued acceleration in Mexican wholesale inflation could lead to accelerating inflation at the retail level.  In Mexico's last several economic 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.  Today's report of a second straight month of accelerating retail inflation is consistent with my prediction, though it is still too early to know if the price gains will keep worsening.  The sharp drop in the value of the peso since mid-summer is perhaps the key inflation risk for Mexico.  Therefore, in spite of some observers' expectations that Banco de México will soon cut interest rates to provide insurance against a possible financial crisis in Europe, it seems increasingly likely that the central bank will hold monetary policy steady for as long as possible.  The policymakers held their benchmark rate unchanged at 4.50% in early December, and if the European situation does not worsen dramatically, they are likely to hold rates steady again in early 2012.

Patrick Fearon, CFA
Vice President, Fund Management

 CPI 1111

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