Mexico's CPI increased 0.26% 2w/2w in the first fortnight of December as a result of price increases in airfares and tourism services, partially compensated by lower prices in some durables such as televisions and tires. Core inflation was 0.27% 2w/2w, while the non-core component was lower than ther forecast (0.21% 2w/2w, estimated: 0.57%) due to lower energy prices (-0.29% 2w/2w). In annual terms, inflation declined to 2.0% y/y from 2.1% previously.

After this report, expect biweekly inflation of 0.30% 2w/2w in the second half of December, which should put annual inflation at 2.1% y/y for the month as a whole. In January, downward pressures on prices are expected to continue (from lower gasoline prices), while base effects should put inflation at 2.6% y/y in that month, remain below 3% for several months and close at 3.0% in a year from now.

Since Banxico hiked in the last meeting after the Fed - in order to "protect the currency" - it is believed that inflation should not be a relevant variable in the months to come as the board might continue to move in line with the Fed, at least at the beginning, to maintain a consistent policy stance. In that sense, two more hikes are expected in March and June next year. The minutes due on December 31 should confirm this view.