Mexico’s inflation likely to continue accelerating in near-term

In September, Mexico’s inflation accelerated mainly due to prices of food that increased 1.6 percent, the most rapid pace since March 2013. Moreover, government-induced increase in transport prices has been a huge factor in normalizing inflation in the last two-three months. Given that the core inflation is already more than the Bank of Mexico’s target and few other consumption segments facing the impacts of peso pass-through, the process of inflation acceleration is expected to continue in the near term, according to a Societe Generale research note.

“Inflation likely rose to 3.18 percent yoy through mid-October”, added Societe Generale.

However, in the medium term, the labor market is likely to stabilize as growth softens and the impact of peso depreciation wanes on certain prices. This would possibly steady inflation below the Banxico’s target ceiling. At that time, the persistent weakness in dwelling inflation might be a major downside risk to the medium-term inflation outlook.

“Should the peso stabilize and appreciate post the US presidential election, we could see the inflation outlook moderating sooner than expected”, noted Societe Generale.