Mexican ag, LPG prices drive July inflation

Market: Metals, Natural gas
08/08/24

Gains in agriculture and LPG gas price helped drive Mexico's headline inflation in July to its highest level since May 2023, although core price gains continued to ease.

The consumer price index (CPI) rose to an annual 5.57pc in July, up from 4.98pc in June and increasing for a fifth consecutive month, Mexico's statistics agency Inegi said today.

A big driver behind the July reading are fruit and vegetable prices, which climbed by 24pc in July, compared with 18pc in June.

Farm goods, and tomatoes in particular, have been hit by a double dip of bad weather with two months of extreme drought before flooding rains began to hit in late June at an active start to this year's hurricane season.

Also hitting the consumer price index (CPI), energy inflation reached 9.2pc in July from the same month in 2023. The group was led by higher LPG prices, up 26pc over last year. Low-octane gasoline prices were next highest, up 6.9pc. Electricity prices followed, rising 5.35pc on an annual basis. Domestic natural gas was the only energy item to decline, dropping 3.4pc in July.

Banorte, however, stressed that core inflation – which excludes volatile food and energy – did ease again in July, slowing to 4.05pc for the month from 4.13pc in June, marking 18 consecutive months of easing.

In a note, Banorte said energy prices stand to benefit from base calendar effects in the coming months.

Mexican bank Citibanamex noted the lower core as well in a note, adding how the recent rains are beginning to reach the most drought stricken areas, and this should help begin to contain non-core prices. "We expect annual headline inflation to resume a gradual downward trend starting in August, and we maintain our estimates for the end of 2024 at 4.4pc for headline inflation and 4.1pc for core inflation," the bank said.

The CPI increased by 1.05pc in June from the prior month, when it posted a 0.38pc monthly gain, said Inegi.

The central bank's monetary policy committee today lowered its reference interest rate to 10.75pc from 11pc, its first reduction since March.

The central bank cited the continued drop in core prices, adding the inflationary environment might allow for further rate adjustments, considering "global shocks will continue fading and the effects of weakness in economic activity."

By James Young

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