Mexican inflation likely accelerated in December, may rise sharply in January on higher gasoline prices

In the last few months, prices of food and transport in Mexico have risen considerably, driven by considerable depreciation of the Mexican peso and the government’s focus on maintaining its fiscal house in order. This, along with the rebound in inflation of dwelling, has pushed headline as well as core inflation above Bank of Mexico’s target level. Given the sharp increase in inflation expectations and continued pressure on the peso, inflation is expected to keep rising further in the near term, said Societe Generale in a research report.

“Inflation likely rose to 3.52 percent yoy in December overall and to a slightly higher 3.57 percent yoy in the second half of the month”, added Societe Generale.

Apart from the normal path of acceleration, inflation would also accelerate significantly beyond December following Pemex’s decision to increase gas prices by almost 20 percent. This is estimated to push up the estimate for average 2-17 inflation by between 0.8 percentage points to 4.7 percent and 4.9 percent, according to Societe Generale. Inflation is likely to moderate towards the central bank’s tolerance range beyond 2017 on rate tightening, a significant base effect and weakening growth.