Mexico's June consumer price index (CPI) was up 4.1% from the
same month one year earlier. That was the country's lowest
inflation rate since February, and it marked a significant slowdown
from the increases of 4.6% in each of the previous two
months. Much of the cooling in inflation during June came
from a pullback in prices for agricultural goods such as tomatoes,
onions, lemons, and eggs. Excluding the volatile categories
of fresh foods, energy, and government-set prices, the June "core"
CPI was up just 2.8% year-over-year, compared with increases of
2.9% in each of the previous two months.
At the wholesale level, inflation reached yet another record
low. The June producer price index (PPI) was up just 0.6%
year-over-year, after increases of 0.8% in May, 1.4% in April, and
1.8% in March.
The report was released today by INEGI, the official statistics
Comment: In recent months,
Mexican consumer inflation had been boosted by food supply shocks,
but many observers expected the impact of those shocks to be
transitory. Today's report suggests those observers were
correct. Going forward, the relative stability in core
inflation and the continued cooling in wholesale prices provide
some assurance that inflation could ease further. That
would help encourage Mexican consumers to start spending more
freely again, and it could allow policymakers at Banco de México to
cut interest rates further if necessary to support the
economy. New rate cuts are certainly not imminent, especially
with global capital retreating from the emerging markets and the
peso down sharply since the spring. Nevertheless, a continued
decline in inflation would make it easier for the policymakers to
cut rates if economic growth faltered.
Patrick Fearon, CFA
Vice President, Fund Management