Mexico's October consumer price index (CPI) was up 3.4% from the
same month one year earlier, just as it was in September.
Prior to that, inflation had stood at 3.5% in both August and July,
down from its most recent peak of 4.6% during the spring.
During October, the expiration of temporary electricity rate
reductions in some localities led to a steep increase in energy
prices, but that was largely offset by a pullback in prices for
fresh foods. Excluding the volatile categories of fresh
foods, energy, and government-set prices, the October "core" CPI
was up 2.5% year-over-year, matching its modest increase in the
At the wholesale level, inflation remained very weak. The
October producer price index (PPI) was up just 1.0% year-over-year,
matching its increase in September.
The report was released today by INEGI, the official statistics
Comment: Cooling inflation has
allowed Banco de México to cut interest rates in order to support
flagging economic growth. Stabilizing prices have probably
also helped keep consumer spending from softening too much.
Unfortunately, it now appears that a series of tax increases passed
by Congress last month will temporarily boost prices again in early
2014. The central bank has expressed its confidence that any
resulting increase in inflation will be short-lived, so it could
continue to cut rates if necessary to boost economic
activity. However, the impact of higher taxes will probably
weigh on consumer demand, imposing yet another headwind for the
Patrick Fearon, CFA
Vice President, Fund Management