Mexico's June consumer price index (CPI) was up just 2.9% from
the same month one year earlier, matching the low level in May but
down from the increases of 3.1% in both April and March.
According to the report, prices actually accelerated in June for a
range of agriculture goods, including beef, pork, beer, and
plantains, but that was offset by slightly weaker price hikes for
energy goods. Excluding the volatile categories of fresh
foods, energy, and government-set prices, the June "core" CPI was
up just 2.3% year-over-year, matching the record low reached in
January, April, and May.
In contrast, inflation at the wholesale level accelerated.
The June producer price index (PPI) was up 3.2% year-over-year,
after a rise of just 2.3% in the year to May.
The report was released today by INEGI, the official statistics
Comment: In theory, the steep
fall in the value of the peso over the last year should make
imported goods and services more expensive, putting upward pressure
on Mexico's inflation rate. However, the fall in global oil
prices over the same period has helped offset that pressure.
The remaining slack in the economy has also limited the impact of
higher import prices on non-energy domestic prices. Banco de
México has therefore been able to keep interest rates at a record
low in order to keep stimulating the economy. What's
interesting in today's report is that it contains a couple of
reminders that inflation in Mexico is unlikely to fall much
further, and that it could even be ready to start
accelerating. One piece of evidence is that PPI inflation has
now surpassed CPI inflation for the first time since early
2012. That suggests there are price pressures in the
pipeline. As producers face accelerating costs, they will
eventually try to pass those costs on to consumers. In
addition, details in the PPI data show that prices for
producer-level services are now increasing at their fastest rate
since mid-2012. Since services are less impacted by the
higher cost of imports, that suggests there are some inflation
pressures building within Mexico's own domestic economy. This
is not to say that Mexican inflation is about to get worryingly
high. What it does say is that we are getting closer to the
day when the central bank will have to raise interest rates
Patrick Fearon, CFA