Mexico CPI: Annual inflation continues to decline amid absence of FX pass-through

Mexico CPI increased 0.12% 2w/2w in the first half of August, mainly explained by a seasonal effect from higher tuitions, partially offset by core other services (airfares). Overall, core inflation was 0.12% 2w/2w, below market expectations (0.16%), while the non-core component printed 0.09% 2w/2w. In annual terms, inflation declined to 2.64% from 2.72% in the previous fortnight.

This is in line with year-end forecast of 2.6% y/y, as services inflation printed -0.01% 2w/2w and stands at 2.26% y/y, suggesting the absence of demand-side pressures and still no evidence of a strong FX pass-through. In fact, inflation in durables declined to 2.65% in H1 August from 2.75% in the previous fortnight.

"The case of a rate hike by Banxico due to MXN volatility is still weak, in our view. In fact, we expect a more aggressive FX intervention first (increasing the amount of USD to be sold) rather than a preemptive hike, on the back of a still-weak growth outlook and stalled inflation confirm our expectation that Banxico will wait until December to start hiking", says Barclays.