MexECON Blog

June Inflation Stays at 2.9 Percent

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 agency.

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 again.

Patrick Fearon, CFA
Portfolio Manager

CPI 1506

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