MexECON Blog

April CPI Rises 3.4 Percent YOY

Mexico's April consumer price index (CPI) was up just 3.4% from the same month one year earlier, after year-over-year increases of 3.7% in March, 3.9% in February, and 4.0% in January.  Mexico's consumer inflation rate is now back down to its lowest rate since last October, and it is once again nearing Banco de México's target of 3.0%.  According to the report, from the official statistics agency INEGI, the deceleration in April came mostly from easing prices for fresh foods such as plantains, tomatoes, eggs, and chicken.  Excluding fresh foods, energy, and administratively-determined prices, the April "core" CPI was also up 3.4% year-over-year, accelerating slightly from its 3.3% rate in the previous month.

As happened in March, inflation at the wholesale level also fell sharply, but it remained higher than at the consumer level.  The April producer price index (PPI) was up 5.7% year-over-year, after an increase of 5.9% in the year to March.  As recently as November, producer inflation in Mexico was running at 9.2%.

Comment:  The April inflation report should ease fears that Mexican consumer prices will run out of control.  Last year's big surge in producer-level inflation certainly had me worried about consumer inflation, but it now appears that a pullback in commodity prices, a stronger peso, and moderating North American economic growth have taken the wind out of price pressures.  Higher base effects and an adjustment to drought conditions have probably also helped.  Going forward, it looks like the European debt crisis is heating up again, and if that weighs on global economic growth like it did last year, it could short-circuit the recent firming in Mexican economic activity and put additional downward pressure on prices.  Lower inflation will make it easier for Banco de México to again express its willingness to cut interest rates as insurance against slowing growth, and the peso has been falling sharply today in response.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1204

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