Mexican mid-November inflation likely accelerated, upside risk to inflation rises

The Mexican inflation continues to be stable; however, the upside risk in increasing. Between June and October of 2016, the country’s consumer price inflation accelerated by 25 basis points to 3.06 percent year-on-year. In the same period, core inflation accelerated by just 13 basis points to 3.10 percent year-on-year.

The reduced rise in core inflation was mainly because of further slowdown in the dwelling component. The stronger increase in non-core components was initially because of a government approved increase in transport prices and then because of the rise in prices of food, noted Societe Generale in a research report.

Yet, there has so far been a restricted impact of the continued depreciation of the Mexican peso on overall inflation. However, this situation is unlikely to last long. The bi-weekly series might probably imply a further acceleration in inflation to 3.14 percent year-on-year, said Societe Generale in a research note. Year-to-date, the Mexican peso has weakened 17 percent, while it has declined 21 percent year-on-year.

Furthermore, the Mexican peso continues to be under pressure because of the possible changes in the U.S. trade policies and the effect on Mexico’s trade and growth outlook. Under this scenario, Mexican inflation is expected to accelerate greater than anticipated earlier in 2017, according to Societe Generale.