Economic Ratings: Upside Price Pressures Persist

April 2008 | Risk Summary

CPI hit is highest rate in 17 months at 4.3% y-o-y in March, up from 3.7% the previous month. Despite the prices of many agricultural commodities pulling back towards the end of Q108, core food jumped from 7.1% y-o-y in February to 7.7% y-o-y, particularly as corn, a Mexican staple, has not come off as much as other products such as wheat and milk. Core inflation as a whole pushed up from 4.1% y-o-y to 4.3% y-o-y, a six-year high, a fact that may give the central bank, Banxico , pause for thought when deciding interest rates, despite a moderating economic outlook. As such, while there is a strong case for a cut in the lending rate from the current level of 7.50% to bolster consumer spending and take some pressure off a peso that has strengthened to two-year highs, the bank may decide to wait until the inflation outlook improves, as we expect it will over the coming months.

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