Mexican inflation continues to fall at moderate pace as core prices remain weak

Mexican inflation slipped below 3.0% (Banxico's target) in May for the first time in a decade and has continued to fall over the past three months, as core inflation remained at its lowest level ever at 2.3% and food inflation fell. While core inflation has bottomed out, food (and to some extent transport) inflation remains the key downside risk to near-term inflation numbers. 

Moreover, it is difficult to factor in a significant rise in core prices over next few months given the low wage pressure and substantial output gap. Finally, MXN pass-through remains low and cannot push up inflation significantly. 

"For August, the monthly series is expected to print at 2.62% yoy (0.24% mom) as the bi-weekly series will likely fall further to 2.60% yoy (0.18% mom). Headline inflation has slipped significantly below Banxico's 3.0% target post the sharp decline in January due to low inflation in the housing segment, the key component of core inflation", says Societe Generale.