MexECON Blog

January CPI Rises 4.0 Percent YOY

Mexico's January consumer price index (CPI) was up 4.0% from the same month one year earlier, after year-over-year increases of 3.8% in December and 3.5% in November.  The country's inflation rate is now at its highest since December 2010.  According to the report, from the official statistics agency INEGI, the acceleration in inflation during January stemmed primarily from higher prices for food products, such as tomatoes, chicken, beef, and pork.  In fact, fresh food prices were up 7.4% year-over-year, for their biggest annual increase since early 2010.  Energy prices were up 5.8% year-over-year, though that was somewhat better than the 6.2% rise in December.  Excluding the volatile categories of fresh foods, energy, and administratively-determined prices, the January "core" CPI was up just 3.3% year-over-year, after an increase of 3.4% in the year through December.

At the wholesale level, inflation remained much higher than at the retail level.  The January producer price index (PPI) was up 8.8% year-over-year, equal to the increase in December but down slightly from the rise of 9.2% in November.

Comment:  Mexico's consumer inflation rate has now increased for four straight months.  The rise has come mostly from increased costs for food, energy, and other products, while prices for consumer services have been more muted.  As I have been arguing, the surge in Mexico's PPI since early 2011 is a sign that consumer inflation will probably continue to accelerate in the coming months.  The Mexican economy is gaining traction again, and consumer demand appears to be rising in response.  Mexican producers are therefore likely to keep passing their increased costs on to consumers.  In addition, the drop in the value of the peso since last summer is probably putting upward pressure on prices.  In this environment, Banco de México is likely to hold interest rates steady in the near term, instead of cutting rates as many observers expected last fall.  The decreased likelihood of a rate cut is probably a key reason why the peso has rebounded over the last month.  If the peso continues to strengthen, inflation pressures could eventually dissipate.  For now, however, the outlook is for inflation to keep worsening.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1201 B

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