Temporal downward trend in Mexico CPI should continue

Mexico CPI decreased 0.26% m/m in April, almost in line with market expectations. The surprise was in some unexpected perishable price declines, partially offset by small pressures in the core food and services components. This yielded a second fortnight inflation of 0.02% 2w/2w, lower than our expectation (0.05%). In annual terms, inflation reached 3.06%, with core inflation at 2.31%.

Inflation remains within Banxico's target, and it will likely continue to decline due to base effects. So far, there is no more evidence of additional FX pass-through, as durable goods inflation is stable at 2.0% y/y. 

"We believe that the CPI has room to accommodate further MXN pressures if volatility increases in the coming months, reducing the probability of a sooner-than-expected hike by Banxico. In that sense, we believe that the likelihood of a hike motivated by domestic conditions will be stronger in Q4 15. We expect the first hike in October, just after the Fed first move." said Barclays Capital