Deceleration in Mexico's inflation supports the view that Banxico should remain on hold in December

Mexico CPI increased 0.52% 2w/2w due to the seasonal adjustment in electricity tariffs, price increases in perishables but partially offset by no core inflation (0.0%2w/2w) as the market expected a 0.16% increase, derived from a 8.8% decrease in mobile tariffs and lower gasoline prices (-0.26%).  In annual terms, inflation declined to 2.3% y/y from 2.5% in the previous fortnight.

After this report economists push down year-end forecast of the annual inflation to 2.4%, from 2.5% previously and confirm the view that inflation will remain very close to 3% during 2016, as base effects will push inflation up in January.

"We confirm our out-of-consensus call that Banxico will not hike in December, even if the US Fed does. Recent communication by the Central Bank suggests that the bias is to remain on hold as long as possible given the gains in inflation risk premia, stabilization of the MXN, low pass-through and relative stability in the local rates markets. Moreover, there are not demand side pressures in sight and next year, lower public investment should maintain demand contained. We believe Banxico might start hiking in the June 2016 meeting", says Barclays.