MexECON Blog

January Inflation Rate Falls Sharply

Mexico's January consumer price index (CPI) was up just 3.1% from the same month one year earlier, marking a sharp slowdown from the 4.1% increase in the year to December and the 4.2% increase in the year to November.  In fact, the inflation rate in January was the lowest since September 2011.  Much of the improvement in January came from the elimination of long-distance charges for national telephone calls, as well as other fee reductions related to the government's recent telecommunications reform.  Prices were also down for tomatoes, chili peppers, natural gas, and electricity, among other key items.  However, even excluding the volatile categories of fresh foods, energy, and government-set prices, the January "core" CPI was up just 2.3% year-over-year, for its smallest increase on record.

At the wholesale level, inflation also cooled.  The January producer price index (PPI) was up 3.5% year-over-year, after a rise of 3.7% in December.

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

Comment:  With prices cooling so broadly during January, it now looks like Mexico has become more like the other major economies that are facing weak inflation.  Much of the slowdown in Mexican inflation was expected.  After all, the year-over-year comparisons are no longer distorted by the country's big sales tax increases in January 2014.  The government has also stopped hiking gasoline and diesel prices, even as the various long-distance charges for telephone calls have been eliminated or reduced.  The more surprising development is that inflation has fallen so much for core goods and services.  Nevertheless, I still think there is a chance that inflation in Mexico will remain a bit higher than many people expect.  Banco de México now thinks the country's inflation rate will fall below its target of 3.0% later this year, but I think stronger economic growth and the weak peso could buoy prices, especially for imported goods and services.  It is also notable that producer prices have been accelerating, and they are now rising faster than consumer prices.  As producers' costs keep rising faster, businesses may eventually be forced to hike prices for consumers more aggressively.

Patrick Fearon, CFA
Vice President, Fund Management

CPI 1501

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