Mexico’s inflation seems to have accelerated in September on higher food prices

Mexico’s inflation is expected to have accelerated in September on higher food prices. In the past few months, bi-weekly inflation figures have been varying between 2.53 percent year-on-year and 2.88 percent year-on-year with government-approved prices for energy playing an important role in accelerating inflation on a bi-weekly basis, whereas the overall price weakness remained, driven by low housing inflation.

With food inflation accelerating sharply through mid-September, the full-month inflation is likely to have accelerated to 2.89 percent year-on-year from 2.73 percent in August, according to Societe Generale. Core inflation is expected to have accelerated slightly to 3.07 percent year-on-year, exceeding Bank of Mexico’s target for the first time since December 2014.

Inflation, after surprising on the downside for most of 2016 so far, has finally begun converging to the central bank’s target rate. Keeping the uptick aside, headline inflation is still greatly influenced by low dwelling and transportation inflation. This shows that the average full-year inflation would probably come in lower than the Banxico’s target.

However, inflation is expected to accelerate partially because of normalization in components such as transportation and dwelling, and partially because of a delayed impact of currency depreciation apart from the rise in food inflation, stated Societe Generale.

Furthermore, a weaker currency might result in inflation to accelerate more rapidly than projected unless the labor market declines. Inflation expectations have continued to increase in the midst of low actual inflation. This implies that the downside risk in the near term is matched by a tad higher inflation in the medium terms, said Societe Generale.

“We expect inflation to average 3.4 percent in 2017. Core inflation will likely remain stable at around or slightly above Banxico’s target”, added Societe Generale.