Mexico's May consumer price index (CPI) was up 4.6% from the
same month one year earlier, matching the increase in April
and leaving inflation at its highest level since last autumn.
Some prices continued to rise rapidly in May, especially prices for
agricultural goods such as tomatoes, eggs, chicken, and beer.
Prices also jumped for some energy goods, such as natural gas and
gasoline. On a more positive note, however, prices for other
goods and serves were more stable. Excluding the volatile
categories of fresh foods, energy, and government-set prices, the
May "core" CPI was up just 2.9% year-over-year, equal to its
increase in April but down from its increases of 3.0% in each of
the two months before that.
At the wholesale level, inflation continued to cool
dramatically, reaching a new record low. The May producer
price index (PPI) was up just 0.8% year-over-year, after increases
of 1.4% in April, 1.8% in March, and 2.1% in February.
The report was released today by INEGI, the official statistics
Comment: Consumer inflation in
Mexico has been boosted by recent food supply shocks. The
most important of those shocks was the discovery of avian influenza
on some poultry farms, which led to the mass culling of
flocks. As a result, prices for fresh foods in April and May
were up more than 15.0% from a year earlier. Fortunately,
those supply shocks seem to be transitory problems whose impact
will likely fade over time. The stability in Mexican core
inflation and the sharp drop in wholesale inflation also suggest
price pressures are still generally muted. If food prices
level off and businesses start passing the benefit of stable
wholesale prices on to their customers, consumer inflation could
begin to fall. That would probably encourage Mexican
consumers to start spending more aggressively again, and it could
allow Banco de México to keep cutting interest rates if necessary
to support the economy.
Patrick Fearon, CFA
Vice President, Fund Management