Mexico inflation in May was -0.50% m/m, mostly driven by a very low inflation in the second half of the month (0.04% 2w/2w), consistent with what we have observed in the past five years during this time of the year. Core inflation was 0.12% m/m, in line with consensus. In annual terms, inflation declined to 2.9% from 3.1% in April, the lowest number in the CPI history (since 1970).
"We expect inflation to remain below 3% and close at 2.6% year-end. This is even considering the reversal in some perishable prices and in the electricity tariffs. The acceleration of inflation later on should be consistent with a stronger economy as core inflation gradually returns to its long-term trend." said Barclays
The historical low levels of inflation should provide Banxico enough leeway to increase rates when it is clearly necessary.
"We definitely rule out a preemptive hike, even if the USDMXN depreciates further, and we also discard a monetary policy move in an extraordinary meeting when the Fed eventually hikes. The first hike by Banxico should not be until Oct 2015 (if the Fed hikes in Sept)." said Barclays
