Mexico's March consumer price index (CPI) was up 4.3% from the
same month one year earlier, after increases of 3.6% in February
and 3.3% in January. The inflation rate in March was the
highest since last autumn. According to the report, released
today by the official statistics agency INEGI, the acceleration in
the third month of the year came mostly from higher prices for food
products such as eggs and chicken. Excluding the volatile
categories of fresh foods, energy, and government-set prices, the
March "core" CPI was up just 3.0% on the year, matching its
increase in February.
In contrast to the situation at the retail level, inflation at
the wholesale level cooled. The March producer price index
excluding petroleum (PPI) was up just 1.8% year-over-year, compared
with a rise of 2.1% in the year to February.
Comment: The March data suggests
Mexican inflation could once again spike in response to food supply
shocks. A recent discovery of avian influenza in Mexico led
to the mass culling of flocks and tightened supplies of eggs and
chicken, which explains the big price jumps for those products last
month. Fortunately, any such price spike is likely to be
transitory. When avian influenza and drought pushed Mexican
food prices higher in mid-2012, the phenomenon dissipated by the
end of the year. The March slowdown in wholesale inflation
also suggests there are few price pressures in the pipeline.
It is true that a third straight acceleration in core consumer
services inflation during March could point to building price
pressures, perhaps engendered by the recent flood of foreign
capital into Mexico, but it is too early to know for sure.
For now, the outlook for Mexican inflation appears benign.
Patrick Fearon, CFA
Vice President, Fund Management