Mexican Household Consumption Slows Amid Economic Uncertainty

Mexican household consumption faced a slowdown in April due to the impact of rising inflation and persistently high interest rates, which collectively eroded families' purchasing power.

According to the Timely Indicator of Private Consumption (IOCP) released by the National Institute of Statistics and Geography (INEGI), household consumption grew by 2.9% year-on-year in the fourth month of 2024. This growth marked the lowest level in the past three months and the weakest April since 2020 (-22.8%), the peak of the COVID-19 pandemic.

Mexican household consumption faced a slowdown in April due to the impact of rising inflation and persistently high interest rates, which collectively eroded families' purchasing power.

According to the Timely Indicator of Private Consumption (IOCP) released by the National Institute of Statistics and Geography (INEGI), household consumption grew by 2.9% year-on-year in the fourth month of 2024. This growth marked the lowest level in the past three months and the weakest April since 2020 (-22.8%), the peak of the COVID-19 pandemic.

On a monthly basis, the increase was marginal at 0.02%, marking the third consecutive monthly rise but also the slowest advance in the same period. In the first four months of this year, the variation was 3.2% annually, lower than the same period in 2022 (3.8%) and 2021 (6.8%). Analysts from Monex anticipate the indicator to strengthen further amid increased consumption around the country's election campaigns.

One of the factors discouraging household spending is inflation, which stood at 4.65% annually in April, the highest level in three months. Additionally, Mexico’s Central Bank (Banxico) recently decided to maintain the interest rate target at 11%, which has been in double digits since Nov. 11, 2022, making consumer credit more expensive. These variables have dampened the positive impact of low unemployment levels, increases in the minimum wage, remittances, and the effects of social programs on incomes.

Despite these challenges, strategists from Banorte believe that consumption fundamentals will remain strong, especially with signs of moderation in remittances and a slow start to the year. They expect that the tight labor market will continue to contribute to higher employment and wages and anticipate positive results in discretionary sectors such as tourism. This outlook is bolstered by the upcoming Hot Sale promotion scheduled from May 15 to 23, which is expected to feature the participation of at least 600 brands.

However, risks persist due to elevated inflation in services and the temporary suspension of social program disbursements, which will resume in July-August, potentially creating a gap toward the end of the second quarter.