Mexico inflation remains low on food and transport prices; core inflation rising

While the headline inflation rate has slipped further over the past couple of months, core inflation has moved up from 2.3% yoy in August to 2.47% yoy in October on the back of a rise in inflation in categories such as health and personal care, apparel, and furniture and domestic accessories. 

Also, dwelling inflation - the key factor behind the sharp decline in inflation earlier this year - has moved up to 0.58% yoy from 0.45%. Mid-month inflation is expected to moderate to 2.47% yoy in November. In sum, core inflation has remained low, while stabilising or even rising, and the weakness in the headline inflation has been driven primarily by the food and transport segments. October and November data should hint that the deceleration (and critically, food inflation) is in last leg and that we will see it move above Banxico's target in January 2016. 

Inflation should revert to its medium-term trend in 2016 when the base effect of lower telecom and energy prices ebbs. Essentially, the inflation situation remains conducive to Banxico's current accommodative stance, and growth and the Fed's stance are likely to be the key factors in monetary policy decisions over the next couple of quarters.