MexECON Blog

January CPI Rises 4.5 Percent YOY

Mexico's January consumer price index (CPI) was up 4.5% from the same month one year earlier, after increases of just 4.0% in December, 3.6% in November, and 3.4% in both October and September.  Mexican inflation is now running at its fastest pace since May 2013.  Much of the acceleration in January came from higher energy prices, as the government continues to remove subsidies.  However, even excluding the volatile categories of fresh foods, energy, and government-set prices, the January "core" CPI was up 3.2% year-over-year, accelerating from a rise of 2.8% in December and reaching its highest rate in more than a year.

At the wholesale level, inflation also accelerated.  The January producer price index (PPI) was up 2.0% year-over-year, hitting that rate for the first time since last March.

Comment:  As I explained when the previous price report came out last month, Mexican inflation will probably remain high in early 2014.  Not only is the government cutting energy subsidies, but a number of new sales taxes took effect on January 1.  The resulting surge in prices has had a huge negative impact on Mexican consumer optimism, as indicated by the consumer confidence index released earlier this week.  Higher inflation and falling consumer confidence will likely discourage consumer spending in the coming months, adding to other domestic challenges such as weak government spending and lethargic construction.  The Mexican economy seems likely to keep expanding in the near term, in large part because of an improved trade balance and at least stabilizing manufacturing activity, but the domestic challenges will likely limit the rate of growth.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1401

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