Mexico’s inflation likely decelerated in March

In spite of a slight acceleration in inflation in 2016, Mexican inflation continues to surprise on the downside, based on trends in the bi-weekly series, according to Societe Generale.

“We estimate that inflation likely fell to 2.73% in March from 2.87% yoy as bi-weekly inflation remained nearly unchanged (2.74% yoy as against 2.71% through mid-March)”, added Societe Generale.

Food inflation is expected to have moderate in March after reaching its strongest level in February. Meanwhile, core inflation is likely to have accelerated, although at a moderate rate, noted Societe Generale. Despite significant depreciation of the Mexican peso in the past 12 months and a base effect, inflation continues to be below Bank of Mexico’s target rate, as dwelling inflation remains low.

Effect of drop in long-distance telecom prices is likely to fade in coming months, resulting in further normalization of dwelling inflation and overall inflation, according to Societe Generale. The bank added that inflation is likely to accelerate more from the second quarter, partially due to the lagged impacts of peso’s decline and partly because of normalization process.

“We see some downside risk to our average annual inflation forecast of 3.4% in 2016”, says Societe Generale.