In January 2015, the weakness in consumer prices in Mexico, mainly due to impacts of lower telecoms, energy and other prices in the housing segment, helped inflation decelerate by almost 1pp from its late 2014 level. This impact has started to decrease in 2016, though at a slower than anticipated pace.
However, with transport inflation near to bottoming, food prices accelerating and dwelling inflation expected to accelerate, inflation in 2016 is expected to be higher than the Bank of Mexico’s target rate. Also, inflation is expected to continue accelerating throughout 2016.
“We expect a mild acceleration in the bi-weekly series (0.2pp change over previous release, or 2.82% yoy) to point in the same direction”, says Societe Geneale.
While continued pressure on the Mexican peso is the main upside risk to 2016 inflation outlook, below-expected growth, lower energy prices and labor market stagnation are the risks on the downside. Inflation is likely to reach 3.4% in 2016.
