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
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