Economics: Consumer Price Index Inflation with Upward Pressure
After lingering below Banco de México’s 3% target for 17 months, inflation has begun to bounce back in the past three months for a number of reasons. In September, 12-month inflation hit 2.97%, its highest point so far this year.
At first, various analysts and even the central bank argued that rising producer prices and exchange-rate depreciation did not necessarily entail a pass-through effect, thanks to a number of other factors that mitigated the internal effect of such developments on the consumer price index. However, in recent months, other factors that had been mitigating the depreciation effect by pressuring some prices lower, including commodity prices and deep cuts applied to some rates in the telecommunications sector such as mobile phone services, have ceased to serve as an offsetting factor.
It is especially troubling when analyzing consumer price index components to note that the line that measures the cost of goods that consumers need to reach a minimal line of well-being is rising faster than either the headline rate of inflation or the price of the basic consumer basket, and that disparity may have major consequences for poverty levels going forward. Moreover, the upward trend in inflation will act as an additional brake on private consumption, which has shown signs of slowing in recent months.
In this week’s Outlook section, we analyze some of the factors that explain the rise in inflation of the past few months and its possible implications.
Last week we saw additional evidence of a relative weakening of private consumption in the form of the latest monthly report from the national retail association. In its report of September results, the National Association of Supermarkets and Department Stores (Antad) reported that same store sales of affiliated retailers grew a real 2.6% last month after having risen 5.3% a year ago. Between January and September such sales experienced average growth of 3.8%. One of the main reasons for the slowing was the performance of general merchandise, in which revenues climbed 2.1% above levels of a year earlier, in contrast to the 4.1% average increase accumulated between January and August 2016 and the 8.3% expansion in September 2015.
Meanwhile, in August Mexico’s industrial sector contracted for a second straight month and accelerated its fall, as activity was off by a 12-month, seasonally adjusted rate of 0.8%. The headline result reflected the positive contribution of the manufacturing industry, which grew at a very moderate pace (1.2% yoy) at the same time as extractive industries experienced yet another major contraction (-8.0%). Construction activity was down 1.3% after having skidded at a 12-month pace of 0.6% in July.
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