Mexico’s inflation continues to accelerate y/y in May, central bank likely to hike rates in June

Mexican consumer price inflation continued to remain high, underpinning expectations that the Banxico will carry on with hiking interest rates in this month. On a sequential basis, the nation’s consumer price index dropped 0.12 percent in May. Increases in the prices of food and other goods were countered by summertime subsidies on residential electricity rates. However, on a year-on-year basis, the inflation rate rose to 6.16 percent, as compared with April’s annual rate of 5.82 percent. It was slightly higher than the consensus expectations of 6.15 percent. The year-on-year rate is the highest since early 2009.

The core inflation, which strips fresh fruit, energy and vegetables, was up 0.28 percent on a sequential basis and rose 4.78 percent on a year-on-year basis, showed the National Statistics Institute. In the meantime, the non0core price index showed a drop of 1.3 percent sequentially. The commodity sub index, within the underlying price index, was up 0.48 percent, whereas services were up 0.10 percent monthly.

Within the non-core price index, the agricultural commodity index was up 1.21 percent, whereas the government-authorized energy prices and tariffs saw a monthly drop of 2.82 percent.

The Bank of Mexico anticipates the annual pace of inflation to stay elevated above the target band of 2 percent to 4 percent in 2017. However, it expects inflation to start alleviating by the end of 2017 and move towards the target band in 2018. In May, the Banxico hiked its rates for the sixth straight time and is broadly anticipated to hike by further 0.25 basis points this month.