Bi-weekly headline CPI stood at 0.04%, with the core at 0.06%, during the second half of December. This print was slightly above Bloomberg’s market consensus (0.03% headline, 0.04% core), but lower than our forecast for headline (0.22%), although close to core (0.09%). For core, goods were up 0.17% with higher non-food merchandise, probably related to end of the year seasonal pressure and part of the recent Peso depreciation. Services declined 0.05% driven by tourism related items. The non-core decreased 0.02% due to fruits and vegetables prices, despite pressures in livestock items following the high demand during Christmas holidays.
After a strong print in the first half of December and today’s results, annual headline inflation reached 4.21% in December from 4.55% in November and 4.66% in 2023. Core CPI ended the year at 3.65%, from 5.09% in the previous year, with disinflation in both tradables (2.47%, from 4.89%) and services (4.94%, from 5.33%). The data released today implies a quarterly average for headline at 4.51% YoY and 3.68% YoY for the core, compared to Banxico’s forecast of 4.6% and 3.6%, respectively, at their last meeting.
Our take: Today’s results, although close to expectations, showed more pressure at the margin at both goods and services (3-month average SAAR data at 2.6% and 4.7%, respectively, using our own seasonal adjustment). Looking ahead, given the USDMXN depreciation from last year, a still tight labor market, and VAT into digital retail sales platforms, we expect inflation to run close to recent level, without any significant further disinflation. We forecast inflation at 3.9% in 2025. Later today, we expect that the minutes from the last decision will play a key role to calibrate market expectations. We expect a 50bps rate cut in February 6th to 9.50% and a slower pace after in tandem with the Fed (reference rate to reach 8.5% by the end of 2025).
