MexECON Blog

May CPI Rises 4.6 Percent YOY

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 agency.

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

CPI 1305

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