MexECON Blog

December CPI Rises 3.6 Percent YOY

Mexico's December consumer price index (CPI) was up just 3.6% from the same month one year earlier, marking the country's lowest inflation rate since last April.  Mexican inflation had surged to 4.8% in September, but the annual increases then moderated to 4.6% in October and 4.2% in November, before falling to 3.6% at the end of the year.  According to the report, released on Wednesday by the official statistics agency INEGI, the fall in inflation during December came in large part from lower prices for some fresh foods, such as chiles and papaya, and sharply lower prices for some domestic services, such as mobile telephone tariffs and airline tickets.  Excluding the volatile categories of fresh foods, energy, and government-set prices, the December "core" CPI was up just 2.9% year-over-year, after a rise of 3.3% in the year to November.

Comment:  With today's report, it is now more certain that inflation pressures in Mexico have really eased.  During the last year, drought and an outbreak of avian influenza had sharply curtailed some types of foods, driving prices higher.  Now, however, the impact of those supply shocks has dissipated.  A modest slowdown in Mexican economic growth also appears to be taking some steam out of retail prices.  I mentioned yesterday that the three-month surge in Mexican consumer confidence was probably coming in large part from lower inflation.  Today's report suggests that hypothesis is correct, and it points to further improvements in optimism going forward.  Consumer spending looks like it will continue to rise, providing some cushion to the economy as exports soften.  Lower inflation will also encourage Banco de México to keep interest rates at their current low levels, which should also bolster the economy.  Mexico's economy still looks like it will slow in the coming months, but lower inflation should help contain the damage.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1212

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