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Encouraging May CPI Data Trumped By Concerns Over Reforms

MEXICO
  • The 0.19% m/m decline in headline CPI inflation in May was driven by lower fruit and vegetable prices in the second half of the month, as well as a subsidy to electricity tariffs. Within core, goods prices rose by just 0.07% m/m, helping to bring core inflation down to its lowest since April 2021. However, services inflation remained sticky, continuing to track above 5% y/y.
  • The better news on inflation hasn’t helped local assets, which have remained under pressure today amidst renewed concerns about possible constitutional reforms following comments from AMLO. USDMXN is currently up 1.7% on the day, while yields have risen over 25bp at the long end of the TIIE curve.
  • Itaú note that annual average headline and core inflation for April and May came in at 4.67% and 4.29%, respectively, which compares fairly with Banxico’s Q2 forecasts of 4.6% and 4.3%. They believe today’s CPI data are still supportive for a rate cut at the June 27 policy meeting, where they expect a split decision, given some Board members cautious stance. However, their call has an upward risk given uncertainty from the new political landscape.
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