According to the Research Department at BBVA, inflation performance during 2019 in Mexico has been remarkable, they expect headline inflation to reach 2.9% by year-end with core at 3.3%.
Key Quotes:
“Although the MXN has recently depreciated due to external factors, the passthrough in the lower part of the cycle is usually negligible or very low, as firms do not have pricing power and need to absorb, at least temporarily, higher costs through lower margins. Although it will likely take some time, these effects should fade away.”
“We now expect headline inflation to reach 2.9% by year-end. In the most recent Banxico analysts survey (released on September 2), the consensus adjusted its year-end expectation to 3.4% (our previous forecast) down from 3.7% in the previous surve. That is, the difference between our forecast and that of consensus is slightly smaller but still significant (-0.4pp vs -0.5pp previously).”
“Regarding core inflation, neither the consensus nor we adjusted our year-end expectations, so the difference remains at -0.4pp, 3.3% vs 3.7%. Thus, the 0.5pp difference in the headline inflation forecast is only partially (0.3pp) explained by the difference in the core inflation forecast. We are expecting core prices to ease in 4Q while consensus is not anticipating it, but we are also expecting non-core inflation to perform better over the remainder of the year.”
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