MexECON Blog

February CPI Rises 4.2 Percent YOY

Mexico's February consumer price index (CPI) was up 4.2% from the same month one year earlier, after a rise of 4.5% in the year to January.  Prior to that, Mexican inflation had stood at just 4.0% in December.  Much of the inflation slowdown in February came from lower prices for tomatoes, chiles, beans, and other unprocessed agricultural goods.  However, even excluding the volatile categories of fresh foods, energy, and government-set prices, the February "core" CPI showed a similar deceleration.  The core CPI showed a year-over-year increase of just 3.0%, compared with 3.2% in January.  The drop in core inflation stemmed mostly from weaker price hikes for consumer services.

At the wholesale level, inflation accelerated.  The February producer price index (PPI) was up 2.4% year-over-year, for its biggest increase since late 2012.

The report was released on Friday by INEGI, the official statistics agency.

Comment:  The Mexican government has been cutting energy subsidies over the last year, driving up prices for a range of fuels.  In addition, a range of new sales taxes took effect in Mexico during January, driving up prices for other consumer goods.  Inflation has therefore surged, and it is expected to remain elevated throughout early 2014 before moderating later in the year and in 2015.  Surging prices have put a huge damper on consumer sentiment.  In turn, that has helped prolong the weakness in Mexican consumption demand.  Nevertheless, a report this week showed optimism rebounded a bit in February.  If prices really do moderate as expected in the coming months, and if hiring picks up in response to the budding recovery in construction and government spending, then Mexican consumer demand could eventually strengthen again.  That would help ensure that the economy keeps growing, though any expansion is likely to remain modest for a while yet.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1402

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