Mexico’s Sep inflation slows with energy prices

Market: Agriculture, Coal, Crude oil, Metals, Natural gas
10/10/24

Lower energy prices supported an easing in Mexico's consumer price index (CPI) in September for a second consecutive month.

The CPI slowed to an annual 4.58pc in September, down from 4.99pc in August, Mexico's statistics agency Inegi said on 9 October.

This was lower than both Mexican bank Banorte's own 4.59pc estimate and its analysts' consensus estimate of 4.61pc.

Energy inflation eased for a second month, dropping to 6.9pc from 7.9pc in August and 9.2pc in July, with LPG prices — the largest component — slowing to 14.7pc in September from 16.8pc in August and 25.6pc in July.

Seasonal rains, now ending, have largely reversed the price spikes in farm goods caused by extreme drought earlier this year, with fruit and vegetable inflation slowing to 7.65pc in September from 12.6pc in August, making it the first single-digit rate since November 2023.

"Despite the positive performance of agricultural items since August, lingering risks could turn them negative again," Banorte said in a note, emphasizing that above-normal rainfall will be needed in the coming months to avoid a return to drought and price spikes next year.

For now, Mexican weather agency Conagua still estimates relatively heavy rains in October, but "more adverse" conditions for November and December, with no state forecast to exceed the upper range of historical rainfall.

Core inflation, which strips out volatile food and energy, eased in September to 3.9pc from 4pc, moving within the central bank's 2pc to 4pc target range for the first time since February 2021.

Inside core, said Banorte, packaged and manufactured goods continue to improve, standing at 2.9pc from 3pc in August. Services also moderated, adjusting to 5.1pc from 5.2pc. "A downward trend in the latter is needed to corroborate additional gains for the core," Banorte said. "This will still take some time, especially given that the margin for additional declines in goods may be running out."

The Mexican bank added that within this context, it maintains its estimate for full-year 2024 core inflation to hold to 3.9pc.

Though less weighted than core inflation, the bulk of September's easing in the headline was due to non-core inflation, including prices on more volatile items such as fuels and farm goods. Inegi reported non-core moving to 6.5pc in September from 8pc in August.

Despite two months of better-than-expected price improvements, Banorte warned that "risks remain," with energy prices susceptible to gains amid "geopolitical tensions in the Middle East and economic stimulus in China."

Still, there is "room to adjust gasoline subsidies" to cushion these effects, it added.

By James Young

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