Mexico's inflation likely to slip again in September

Mexico's inflation slipped below 3.0% (the Banxico's target) in May for the first time in a decade and has declined even further since then, as core inflation remained at its lowest level ever at 2.3% and food inflation fell to its lowest levels in 16 months. The key component of core inflation - dwellings - remains the single most important factor keeping inflation below target. 

It is difficult to factor in a significant rise in core prices in the next few months given the low wage pressure and the substantial output gap while MXN passthrough remains low. The bi-weekly series for mid-September is likely to report annual inflation at 2.48% yoy, estimates Societe Generale.

Mexico's inflation rate is expected to revert to its medium-term trend in 2016 when the base effect of lower telecom and energy prices ebb. Broadly, the inflation situation remains conducive to Banxico's current accommodative stance, and economic growth and the Fed's policy stance are likely to be the key factors in monetary policy decisions in the near term. The country's inflation rate is likely at 2.9% in 2015 and 3.5% in 2016, says Societe Generale in a research note to its client.