Mexico’s inflation in January likely accelerated, may surge above Banxico’s target

Mexico's January inflation is expected to have accelerated in January. The bi-weekly series had indicated that inflation through mid-January accelerated to 2.48% y/y from the record low of 2% y/y through mid-December. This trend is expected to carry on in January, and the second bi-weekly series for January is likely to indicate that inflation accelerated to 2.77% y/y. This suggests that January's inflation accelerated to 2.62% y/y. Core inflation is expected to have risen to 2.65% y/y in January.

The weakness in consumer prices in Mexico in 2015 was mainly because of the impact of lower telecom, energy and other prices. This led to deceleration of inflation by almost 1% in January 2015 from its end-2014 level.

"This effect should end in January-February 2016, when inflation will likely surge above Banxico's 3.0% target. It should head higher from Q2 onwards as the labour market tightens further on stronger growth. We expect average headline and core inflation of 3.5% and 3.2% respectively in 2016", says Barclays.

The Bank of Mexico can get several reasons from inflation, growth and pressure on MXN to carry on normalising the policy rate in 2016.