MexECON Blog

December CPI Rises 4.1 Percent YOY

Mexico's December consumer price index (CPI) was up 4.1% from the same month one year earlier, after increases of 4.2% in November and 4.3% in October.  According to the report, the slowdown in inflation during December reflected weaker pricing for a wide range of goods and services.  The only major category to show accelerating prices in December was fresh foods such as tomatoes, eggs, and beef.  Excluding the volatile categories of fresh foods, energy, and government-set prices, the December "core" CPI was up just 3.2% year-over-year, after three straight months of 3.3% increases.

In contrast, inflation accelerated at the wholesale level.  The December producer price index (PPI) was up 3.3% year-over-year, after increases of 2.7% in November and 2.9% in October.

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

Comment:  Mexico's recent trend toward moderating consumer inflation is likely to continue in the coming months.  Starting with the January CPI, the year-over-year change will no longer be impacted by the sales tax hikes imposed in January 2014.  The government's recent decision to forego any more increases in gasoline and diesel prices will also help hold down overall prices, and relatively slow inflation at the producer level should further help to limit consumer price hikes.  Nevertheless, it is not clear how much inflation will decrease.  Mexican inflation is looking relatively sticky.  Banco de México continues to express confidence that overall inflation will fall toward its target of 3.0% in 2015, but even a cursory look at the chart below shows that inflation has been stuck around its current level for the last three years.  Moreover, while producer inflation remains below consumer inflation, it has clearly been rising, and that suggests there may be new price pressures building "in the pipeline."  Finally, the extremely weak peso threatens to boost inflation by raising the cost of imported goods and services.  These factors suggest that the central bank's next policy move should be to raise interest rates, though the timing of any such move is unclear.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1412

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