Inflation latest publications
Lima's Consumer Price Index fell 0.27% m/m in June, a downside surprise for the market (Bloomberg Consensus: -0.10% m/m). With June's monthly result, year-on-year inflation slowed down to 1.6%, from 1.8% the previous month.
Yet, we continue to expect Banxico to cut the policy rate until it reaches c. 0% real levels by year-end ie, 3.0% to 3.5%. The Board’s concerns on the ER should have eased in the intermeeting period.
Baseline assumes real GDP declines by 4.4% in 2020. Peak unemployment reached, but risks to the labor market remain. Disinflationary headwinds abate, but inflation to remain low in 2020. Fed to keep rates at the Zero Lower Bound, balance sheet growth to continue.
We expect headline inflation to increase 0.58% MoM in May, thereby accelerating to 3.04% YoY from 2.15% in April. We anticipate a 0.36% MoM core inflation increase (3.71% YoY, up from 3.50% in April).
Consumer prices increased by 1.36% in May. Therefore, annual inflation accelerated to 11.39% from 10.94% in April. Depending on the food inflation and the level of exchange rate, headline inflation could stay close to 12% in June before converging to 9% towards the end of 3Q and ending the year at near 8.5%.
May 20, 2020
Mexico | YoY headline inflation volatility kicks in driven by the rebound in energy prices
We expect headline inflation to post a 0.00% HoH change in the first half of May, thereby increasing to 2.5% YoY from 2.2% in the second half of April. We anticipate a 0.09% HoH core inflation increase (3.60% YoY, unchanged from 3.61% in the previous fortnight).
Banxico cut the policy rate by 50bp to 5.50% but surprisingly continued to strike a hawkish tone. It seems that the central bank is more focused on the exchange rate and capital flows than on inflation and economic activity.
In April, consumer prices declined 0.8% over-the-month, in the first signs of a major downdraft in inflation. Today’s numbers were significantly below expectations and marked the lowest monthly decline since December 2008.