Mexico's inflation slowed but remains a concern

Data from Mexico's National Institute of Statistics and Geography released Monday showed that the core price index increased and inflation slowed, although it’s still above target.

Annual inflation in the second half of September, according to the Reuters consensus forecast, was expected to be 8.63%. However, Mexico's inflation rate fell even further, to 8.53%. Reuters' forecasts for consumer prices also didn’t match reality, Reuters had predicted an increase of 0.53%, but they rose only 0.44%.

Mexican President Andres Manuel Lopez Obrador noted that they managed to reduce the rate of inflation growth thanks to effective measures. One of these measures was an agreement with retailers to curb prices.

According to market expectations, in the first weeks of October the core price index should have risen by 0.35%, but it rose by 0.42%. It’s worth bearing in mind that the index doesn’t include products with high volatility. 

Forecasts for annual core inflation were at 8.31%, but ultimately it was 8.39%, which exceeded the predicted numbers.

The decline in the price of liquefied petroleum gas launched a further chain of declines. As the price of gas fell, the non-basic index fell, and as the non-basic index fell, so did headline inflation. Jonathan Heath of Bank of Mexico said of these changes. He also noted that core inflation is the biggest concern because a drop in the price of one product in conditions when prices in general are high won’t make a difference.

Since the actions of the U.S. Federal Reserve can still be assessed as rather sharp and harsh, the Bank of Mexico is expected to raise the rate by 75 basis points. That's what Jason Tuvey of Capital Economics says. On the other hand, he notes that such actions could mean that the bank will soon move to more loose actions.

According to Andres Abadia, chief economist for Latin America at Pantheon Macroeconomics, there are three reasons for a further decline in inflation. The first is the base effect, the second is the weakening of domestic demand, and the third is the delayed effect of tightening financial conditions.