Mexico’s inflation to reach 3 pct by end-2016

The latest CPI numbers from Mexico came in at 2.13% y/y in December but slightly higher than consensus expectations. Apart from this non-core inflation in the last fortnight of December printed 1.18% 2w/2w, reflecting a solid increase in fruits and vegetables of 7.72% 2w/2w. With the core component at 0.09% 2w/2w, inflation headline was 0.36% 2w/2w.

Markets anticipate inflation to reach 3.1% y/y year-end in 2016 with core inflation stable and below 3% for the entire year. As price of gasoline and electrical tariffs are low, CPI should be benefited from lower prices. While looking at the economic factors, markets expect the headline CPI should below 3.0% for the year 2016.

Moreover, markets assume that Banxico will copy the Fed movements at least during the first half of the year to protect their currency. The main hurdle for interest rate hike could be significant appreciation of the currency or disappointing economic data.