MexECON Blog

September CPI Rises 4.8 Percent YOY

Mexico's September consumer price index (CPI) was up 4.8% from the same month one year earlier, after increases of 4.6% in August and 4.4% in July.  Mexican inflation has now accelerated for five straight months, and it stands at its highest level in two and a half years.  According to the report, from the official statistics agency INEGI, the acceleration in September came solely from skyrocketing prices for fresh foods.  Those prices rose an astounding 16.0% year-over-year, driven by big increases for products such as tomatoes, eggs, poultry, and beef.  Excluding fresh foods, energy, and government-set prices, the September "core" CPI was up just 3.6% year-over-year, after an increase of 3.7% in the year to August.

Comment:  The surge in Mexican food prices comes in large part from an outbreak of avian influenza that has decimated poultry flocks.  In addition, drought conditions throughout North America have driven up prices for grains and other crops.  Those problems are likely to dissipate over time.  Nevertheless, Mexico's extraordinarily strong economic growth and a plunge in the value of the peso over the last year could keep inflation from falling back very much.  The inflation problem has already started to undermine consumer confidence.  Policymakers have started to take notice as well.  In recent weeks, high-level officials from Banco de México have stated that they could raise interest rates if price pressures worsen, and minutes from the central bank's last policy-setting meeting show officials actively discussed that possibility.  The chances are increasing that Mexico could soon raise interest rates, bucking the global trend.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1209

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