MexECON Blog

December CPI Rises 3.8 Percent YOY

Mexico's December consumer price index (CPI) was up 3.8% from the same month one year earlier, according to a report today from the official statistics agency INEGI.  That marked the third straight month of accelerating inflation, after year-over-year increases of 3.5% in November, 3.2% in October, and 3.1% in September.  Inflation in Mexico is now at its highest since the beginning of 2011.  The rise in inflation during December came mostly from a jump in prices for fresh foods, such as tomatoes, beef, and chicken.  Excluding the volatile categories of fresh foods, energy, and administratively-determined prices, the December "core" CPI was up just 3.4% year-over-year, after increases of 3.3% in November and 3.2% in October.

At the wholesale level, inflation cooled a bit, but it remained much higher than at the retail level.  The December producer price index (PPI) was up 8.8% from the same month one year earlier, after year-over-year increases of 9.2% in November and 8.3% in October.

Comment:  I have been arguing that the recent acceleration in Mexican wholesale inflation could be a harbinger of increased 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 shows producers may finally be trying to pass their increased costs on to the consumer.  One big source of inflation for Mexico is that the value of the country's currency has plunged since mid-summer, making imported goods and services more expensive and increasing the purchasing power of dollars sent by family members working in the United States.  There is still some chance that Banco de México will soon cut interest rates as insurance against a worsening of the European debt crisis or slower economic growth in Asia.  However, if price pressures remain elevated, the central bank is much more likely to hold rates steady for a while yet.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1112

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