In January 2015, Mexico's inflation decelerated by almost 1% from its end-2014 levels due to the weakness in consumer prices - mainly due to the impact of lower energy, telecoms, and other housing segment prices. This impact is likely to go away in 2016.
The full moth inflation data for January 2016 implies that inflation bottomed in December 2015, whereas the base effect will remain to drive a near term inflation acceleration. The acceleration in price was noticeable in housing, health and personal care and in food categories with the help of base effect.
"We expect the inflation acceleration to continue through Q3 this year and estimate mid-February inflation at 2.91% yoy (0.26% mom)", says Societe Generale.
The main upside risk to 2016 inflation outlook is continued pressure on the MXN. Meanwhile, labor market stagnation, lower energy prices and below expectation growth are the main downside risks to the inflation scenario. Inflation is likely to accelerate to around 3.5% in Q3.
