MexECON Blog

May CPI Rises 3.2 Percent YOY

Mexico's May consumer price index (CPI) was up 3.2% from the same month one year earlier, moderating from a gain of 3.4% in the year to April and close to the cycle low of 3.0% in the year to March.  According to the report, from Banco de México, the decline in inflation during May was broadly based.  Excluding the volatile categories of fresh foods, energy, and administratively-determined prices, the May "core" CPI was up just 3.1% year-over-year, after a rise of 3.2% in the year to April.  Among the most important core prices, those for processed foods - especially corn tortillas, the national staple - continued to rise rapidly on an annual basis, but these increases were offset by moderating prices for various services, particularly those related to tourism.  May non-core prices were up 3.5% year-over-year, after a year-over-year increase of 3.9% in April, as prices fell for various fresh vegetables and electricity.  The report also showed moderating inflation at the wholesale level.  The May producer price index (PPI) was up just 3.1% year-over-year, after a rise of 3.9% in April.

Comment:  Consumer inflation in Mexico has come down dramatically from its cycle peak of 6.5% in December 2008, and it is now holding around its lowest rate in the last five years.  With some slack remaining in the economy, inflation seems likely to remain under wraps in the near term, but the average in the coming months is likely to be a bit higher than in May.  Recent signs of weak corn harvests worldwide suggest tortilla prices could keep rising, which alone would put upward pressure on core inflation.  In addition, some of the decline in tourism services prices during May probably reflected a normal retreat after the late Easter holiday in April.  Since those declines are unlikely to be repeated, overall core services prices are also likely to accelerate again.  Finally, the decline in fresh food prices that held down non-core inflation last month may simply reflect a one-off normalization of supplies after unusual freezes in February destroyed many vegetable crops.  Nevertheless, even if inflation rebounds a bit, the central bank is likely to keep interest rates at their current low levels in the coming months in order to support the country's economic recovery and take some upward pressure off the peso.

Patrick Fearon, CFA
Vice President, Fund Management

                                 Mexico's Consumer Price Index (CPI)
                                      Percent Change, Year-Over-Year
                                            Source:  Banco de México
CPI 1105

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