Mexico Inflation Accelerates After Shopping Discounts End

(Bloomberg) -- Mexico’s inflation accelerated in line with expectations in early December after the effects of a shopping holiday the previous two weeks wore off, putting an end to a run of slowing biweekly prints.

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Consumer prices rose 7.77% in the first two weeks of December from the same period a year earlier, up from 7.46% in late November, the national statistics institute reported Thursday. The reading was in line with the 7.76% median estimate of economists surveyed by Bloomberg.

Until this month, biweekly inflation had slowed over six straight readings since early September, but the streak was halted by the end of discounts from late November’s Buen Fin shopping holiday. Processed food and drinks led the acceleration, climbing 14.13% compared to a year earlier.

“This has to do in good measure with the correction of the atypical behavior that we saw in the second half of November due to the Buen Fin program, which had big reductions,” said Janneth Quiroz Zamora, vice president of economic research at Monex Casa de Bolsa.

Core inflation, which strips out volatile prices like fresh food and is closely watched in Mexico, slowed slightly to 8.35% compared to a year ago, from 8.37% in late November. However, the reading was helped by a high base number in the same period in 2021 and core prices rose 0.57% compared to the previous two weeks, after having fallen 0.04% in late November, noted Gabriela Siller, director of economic analysis at Grupo Financiero BASE.

“While core inflation slowed down slightly on annual basis, still we would need to wait for the next figures to make sure it continues on a downward trend. Its not a victory yet,” said Julio Ruiz, Mexico economist at Itau BBA.

Record Tightening

Mexico’s central bank slowed the pace of its record tightening spree in December, hiking its key interest rate to an unprecedented 10.5% while pledging another increase in February. Economists polled by Citibanamex expect a quarter-point hike at the next meeting.

Read More: Mexico Pledges a Hike at Next Meeting After Raising to 10.5%

The bank, known as Banxico, targets inflation at 3%, plus or minus 1 percentage point.

The five-member board may lose its most dovish member, Gerardo Esquivel, before its next decision, as his term finishes at the end of the year and President Andres Manuel Lopez Obrador has signaled he might not be reappointed to the role. Esquivel has consistently voted for smaller hikes than the rest of the board, including backing a quarter-point rise this month.

Economists see inflation accelerating through December to finish the year at 8.01%, from 7.8% in November, according to a Citibanamex poll published Wednesday. They see core inflation slowing to 8.3% at year-end.

--With assistance from Rafael Gayol.

(Updates with economist comments starting in fourth paragraph)

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