MexECON Blog

October CPI Rises 3.4 Percent YOY

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 previous month.

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 agency.

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 economy.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1310

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