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Analysts Highlight Renewed External Risks Could Impact Inflation Outlook

MEXICO
  • JPMorgan: Monday’s CPI data confirmed that core stickiness – particularly services – is the one Banxico will keep zooming in on. Benign non-core dynamics earlier in the year were not enough to accelerate its mean-reversion, and JPMorgan fear incoming shocks will jeopardize its convergence to target. Besides domestic demand heating up, renewed external risks are somewhat concerning, particularly energy after this week’s spike in oil prices on the back of the Middle East conflict.
    • While inflation seems to be on track for meeting JPM’s forecasts by year-end, they agree with Banxico’s narrative that upside risks remain in place. JPM are keeping a close eye on minimum wage negotiations (to be announced in early December) and the risks of further demand-side pressures as the economy continues to outperform on both consumption and investment.
  • Pantheon: Overall, yesterday’s report confirms that the inflation picture is continuing to improve, thanks to the lagged effect of tighter financial conditions, the impressive MXN rebound in recent months and lower raw-material prices. Softening economic activity is also helping to put a lid on inflation. The near term, however, appears very complex, due mostly to the deteriorating global backdrop—pushing the MXN to its lowest level since May—and the rebound in oil prices.
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