Mexico’s inflation likely to come above central bank’s target rate of 3 pct in 2016

In the first quarter of 2016, Mexico’s inflation came in at 2.7%, below Societe Generale’s projection of 3%, as inflation decelerated to 2.49% y/y in the second half of March 2016. In the beginning of 2016, core prices in Mexico did not rise as per expectations. Inflation has slowed down because of a fall in transport inflation in recent times. However, inflation’s annual rate is expected to have rebound in mid- April to 2.75% y/y, noted Societe Generale.

Overall inflation is likely to rebound further in the near future with the help of higher dwelling and food inflation and stabilization of transport inflation, according to Societe Generale.

“Despite the rising possibility of the downward revision to our 2016 inflation forecast of 3.4%, we continue to hold the view that inflation this year will be higher than the Banxico’s target (3.0%), and that it will continue to accelerate throughout this year”, added Societe Generale.

The inflation outlook faces downside risks from lower energy prices, below-expected growth and a sluggish labor market, whereas a probability of lagged pass-through effect from the decline of Mexican peso continues to be an upside risk to the inflation.