Mexico CPI in line with expectations, Banxico should remain on hold despite any Fed action

Mexico CPI increased 0.51% m/m in October as a result of mild bi-weekly inflation in the second half of the month (0.11% 2w/2w). As expected, modest increments were seen in the non-core prices meanwhile the core index only rose 0.09% 2w/2w. Annual inflation declined to 2.48% from 2.52% in the previous month. Services inflation remains stready at 2.3% y/y.

This outcome is consistent with year-end forecast of 2.5% y/y. According to economist's estimates, annual inflation is set to continue inching lower  towards 2.4% in November and then later increase. Core inflation will continue inching up, but still should reach 2.7% y/y by year end and only increase to 3.2% in January.

"We believe that Banxico will not automatically react to this action. Inflation will continue to perform very close to target with still very modest FX pass-through, while tighter fiscal policy during the year should curb domestic demand.  We confirm our view that Banxico will wait until June 2016 to start a potential hiking cycle", says Barclays.