Mexico's March consumer price index (CPI) was up just 3.7% from
the same month one year earlier, after year-over-year increases of
3.9% in February and 4.0% in January. Mexico's inflation rate
is now at its lowest since last November. According to the
report, from the official statistics agency INEGI, the slowdown in
inflation during March came mostly from easing prices for fresh
foods such as tomatoes, potatoes, eggs, and chicken.
Excluding fresh foods, energy, and administratively-determined
prices, the March "core" CPI was up 3.3% year-over-year, after a
gain of 3.4% in February.
At the wholesale level, inflation fell even more sharply, though
it remained significantly higher than at the consumer level.
The March producer price index (PPI) was up 5.2% year-over-year,
after increases of 5.6% in February, 6.4% in January, and 6.6% in
each of the last two months of 2011.
Comment: The moderation in
Mexico's consumer inflation is encouraging, but wholesale prices
are still rising much faster than consumer prices, so it is still
too early to breathe easy on the issue of price stability. As
I have discussed in this blog many times over the last few months,
I still think there is a significant upside risk to inflation,
especially with drought still gripping much of Mexico and global
oil prices still lofty. Separately, one key result of the
recent slowdown in inflation is that the Mexican peso could weaken
again. With inflation falling closer to Banco de México's
goal of 3.0%, the central bank has more room to cut rates if
necessary to combat any unexpected slowing in the world
economy. Coupled with the soft U.S. employment report last
Friday and recent data highlighting the continued problems in the
European economies, those concerns already have pushed the peso
down in recent days.
Patrick Fearon, CFA
Vice President, Fund Management