MexECON Blog

Consumer Confidence Falls Again

Mexico's September consumer confidence index fell by a seasonally-adjusted 1.5%, after a revised decline of 0.9% in August.  The decline in September was the worst since April 2011, and it marked the third drop in the last four months.  According to the report, from the official statistics agency INEGI, the subindex on consumers' view of the current situation in the country as a whole plunged 5.5% in September, accelerating from a decline of 0.3% in August and marking its sharpest decrease since mid-2010.  The subindex on future expectations for the country as a whole slid 2.4%, after a small rise the previous month.  The subindexes on consumers' views of the current situation and future expectations for their own family also both declined.  The important subindex on consumers' willingness to buy durable goods fell 3.3% in September, but that was not as bad as the 5.5% fall in the previous month and the 8.8% plunge back in June.

Comment:  The European debt crisis has calmed down since early September, and recent reports for Mexico show continuing strong economic growth, a rebounding manufacturing sector, and a stable labor market.  With the environment for Mexican economic activity looking positive, it appears the on-going fall in consumer confidence stems mostly from accelerating price increases.  Consumer price inflation in Mexico accelerated to 4.6% in August, reaching its highest level in almost two and a half years.  The problem of inflation may help explain why the subindex on consumers' willingness to buy durable goods fell less in September than in August.  With price increases accelerating, some consumers may want to lock in prices for high-cost items before they become even more expensive.  Nevertheless, accelerating inflation and falling optimism pose a risk to Mexico's domestic demand.  Mexico's budding inflation problem stems in part from drought-driven food costs and rising prices for globally traded energy products, but some of it probably also comes from the country's strong economic growth.  It is therefore becoming increasingly possible that Banco de México will raise interest rates in the coming months.

Patrick Fearon, CFA
Vice President, Fund Management

                                        Mexican Consumer Confidence
                                   Seasonally Adjusted, January 2003 = 100
                                                    Source:  INEGI
Consumer Confidence 1209

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