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Weak March CPI Data Increase Prospect Of May Rate Cut

MEXICO
  • CPI inflation surprised meaningfully to the downside in the second half of March, with the Bi-weekly CPI data showing the headline rate falling to 4.37% y/y (vs. 4.54% expected) for the period ending March 31, while the core rate declined to 4.41% (vs. 4.57% expected). A fall in fruit and veg prices and energy tariffs helped, while core services prices also dipped, as seasonal factors due to Easter look to have partially unwound.
  • There was little initial reaction to the data from the Mexican peso, although USDMXN has edged higher in recent trade, having hit a new low of 16.2616 early in the session. The trend direction in USDMXN remains bearish and the recent move lower opens 16.2159 next, the 1.50 projection of the Dec 5 - Jan 8 - Jan 17 price swing.
  • In Itaú’s view, the March inflation figures, particularly in the second half of the month, support their call for the central bank to cut its policy rate by 25bp in May. This contrasts with last Friday’s Citibanamex survey which indicated that analysts expect the next 25bp cut to come in June, after a pause in May. Itaú note that there will be two more inflation prints before the May 9 MPC meeting. They believe it likely that downside inflation pressure will continue in 1H April from tourism related prices, considering historical patterns.
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