Mexico's inflation bottomed but likely to stay near Banxico’s target this year

Inflation slipped below 3.0% in May (actually 2.9% yoy) for the first time in a decade as core inflation remained at its lowest level ever at 2.3% and food prices fell further. Both these factors have bottomed and expectd bi-weekly inflation through the first half of June to reflect this point (SGe: 2.90% yoy as against the previous bi-weekly reading of 2.82% yoy), states Societe Generale. That said, it's difficult to factor in a significant rise in core prices going forward given low wage pressure and the substantial output gap while MXN pass-through remains low. 

Essentially, headline inflation remains close to Banxico's target level of 3.0% post the sharp decline in January. Societe Generale says, no factors are seemed to be distrub inflation, therefore, the inflation rate is likely to rise modestly over the next 12 months. 

According to Scoiete Generale's estimation, "Inflation for 2015 and 2016 remains unchanged at 3.2% and 3.4%, respectively, although core inflation looks marginally weaker. Growth in aggregate demand will remain the key driver for both inflation expectations and monetary policy in the medium term."