Mexico automotive


Mid-month inflation surges following petrol price rises

January 25th 2017 | Mexico | Fuel sources


Consumer prices rose by 4.8% year on year in January, according to a mid-month inflation estimate by the Instituto Nacional de Estadística y Geografía (the national statistics institute). Compared with their mid-December levels, consumer prices surged by 1.5%.


The main driver of the surge in inflation was the petrol price rise (known colloquially as the gasolinazo) that was implemented on January 1st, bringing a 15‑20% increase in prices depending on fuel type. The rise was justified on the grounds that it would help to alleviate fiscal pressure in a year that is set to be highly turbulent in the light of probable protectionist measures implemented by the Donald Trump administration in the US. Nevertheless, the move was highly unpopular and has led to a series of blockades and protests, some of which have turned violent. It has also led to a renewed slump in the popularity of the president, Enrique Peña Nieto, who is currently polling with approval of just 12%, the lowest of any Mexican president on record.

The 1.5% rise in prices in the 30 days to mid-January is the highest in a comparable period since 1999 and, at 4.8% year on year, consumer prices have overshot the 2‑4% target set by the Banco de México (Banxico, the central bank). Core prices rose by 3.7%, the highest level since 2010. The government is likely to receive considerable criticism for underplaying the inflationary impact of the petrol price increases; the minister of finance, José Antonio Meade, claimed that these would be mild and temporary. A sharp 10.4% rise in producer prices in December suggests that price pressures have been building, even discounting the effects of the gasolinazo. A further rise in petrol prices in February (when they will be liberalised) will further the damage.

Bringing inflation down will prove difficult for Banxico: it has already spent some of its main ammunition for price stability—rate rises—in an unsuccessful attempt at defending the peso from depreciating in 2016. And further rises are likely to have a negative impact on growth.

Impact on the forecast

We will be making upwards adjustments to our average inflation forecast for 2017 (currently at 4%). Despite the impact on growth, we now expect Banxico to resort to greater monetary tightening than previously expected.

Source: The Economist Intelligence Unit

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