Economics: Pros and Cons of Revised NCPI

MEXICO - Report 25 Sep 2017 by Mauricio González and Esteban Manteca

In light of the need to regularly update how inflation surveys are conducted to in order to better track consumers’ actual consumption patterns – reflecting changes in consumer preferences for products and services, their availability and relevance to consumers, the sorts of venues in which the public is buying such goods, and the most representative cities in which consumers are distributed throughout Mexico – over the past three years Inegi has been preparing a revised approach to calculate the National Consumer Price Index (NCPI), with that update scheduled to take effect in mid 2018.

The changes Inegi is planning are part of a broader process of continuous improvements to the instruments the institute uses to collect and disseminate information that draws on a combination of existing Inegi surveys as well as frequent exchanges of technical concepts and practices with international institutions.

Though many details will not be made public until next summer, we know the NCPI and its accompanying reports will be more comprehensive and detailed in many respects, although unfortunately Inegi will cease to publish consumer price indexes by income strata and for the basic basket of goods and services.

The updating of the NCPI is welcome and should provide us with a clearer understanding of the price changes that affect the goods and services households consume. However, it is numerically possible that under certain circumstances during the first year of the new NCPI, changes in weightings may send the headline inflation rate higher than either the core or non core components suggest. Such results could adversely affect the perception of Mexico’s economic performance and future inflation expectations, as well as adjustments to the minimum wage and negotiated wage settlements during the final months of the current presidential administration and the first ones of the new administration that will take office in December of 2018. They might also raise doubts as to Banco de México’s ability to bring inflation back in line with its 3% annual target, just as a new central bank governor is expected to assume that post.

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