MexECON Blog

Inflation Weakens Further in July

Mexico's July consumer price index (CPI) was up just 2.7% from the same month one year earlier, marking the lowest recorded inflation rate in Mexican history.  For comparison, inflation had stood at 2.9% in both June and May and 3.1% in both April and March.  According to the report, the slowdown in inflation during July stemmed in large part from weaker pricing for a range of agricultural products, such as eggs, chiles, and potatoes.  Excluding the volatile categories of fresh foods, energy, and government-set prices, the July "core" CPI was up 2.3%, just as it was in each of the previous three months.

In contrast, inflation at the wholesale level accelerated.  The July producer price index (PPI) was up 3.3% year-over-year, accelerating from a rise of 3.2% in June and marking its fastest increase since last December.

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

Comment:  The new record low in Mexican inflation shows that the weak peso still has not had an overwhelming impact on prices in Mexico.  The weak currency may be putting some upward pressure on the prices for imported goods and services, but that is still outweighed by factors such as the recent drop in global petroleum prices and the government's reform of the telecommunications industry, which has lowered regulated telephone prices.  Against this backdrop, it is tempting to think that Banco de México is being too pessimistic when it warns that a likely hike in U.S. interest rates in the next few months could drive the peso even lower and spark higher inflation.  It is tempting to think that the current rate of inflation should allow the central bank to keep its benchmark interest rate low for an extended period.  Nevertheless, the experts at the central bank clearly are worried about the potential for higher inflation down the road.  They continue to signal that they will respond to the expected rate hike in the United States by hiking Mexican rates in tandem, in spite of Mexico's low inflation rate at present.

Patrick Fearon, CFA
Portfolio Manager

CPI 1507

0 comment(s) for “Inflation Weakens Further in July”

    Leave a Comment