Mexico’s Inflation Drops to 4.79% in the First Two Weeks of July

Mexico's inflation dropped to 4.79% in the first two weeks of July 2023, reports the National Institute of Statistics and Geography (INEGI). Despite the positive results, some products such as avocado, onion, agricultural products and air transportation experienced a price increase. In the first half of July 2023, the National Consumer Price Index (INPC) showed a modest variation of 0.29% compared to the same period in the previous year.

The unprecedented inflation experienced globally and nationally in 2022 led many central banks, including Mexico's, to raise interest rates. To fight the rapidly climbing inflation, the Mexican government implemented the Package Against Inflation and Scarcity (PACIC) to control essential goods' prices. Mexico’s central bank (Banxico) steadily increased interest rates to bring inflation down to the 3% +/- 1 target. Banxico is now committed to maintaining the historically high interest rate of 11.25% for an indefinite period to ensure this objective is met.

INEGI's recent findings also point to a decline in the non-core index, attributed to the decrease in international oil prices. Additionally, the agricultural sector experienced an annual inflation rate of 2.52% in the first half of July, with fruits and vegetables seeing a price increase of 5.59%, while livestock products witnessed only a 0.08% increase.

Furthermore, INEGI's report indicates a 3.93% decrease in energy prices and government-authorized tariffs on an annual basis. Overall tariffs showed an inflation rate of 5.67%, while energy prices decreased by 7.92%.

As for the core index, which excludes volatile items like food and energy, inflation reached 6.76%. Within this sub-index, the prices of goods, which exert primary pressure on the general index, increased by 7.99%, while the cost of services rose by 5.29%.

Although the inflation outlook suggests a continuous decline, it is prudent to maintain a cautious perspective and consider the actions implemented by Banxico. Despite that certain essential goods experienced price hikes, Banxico's steady efforts have led to the convergence toward its inflation target.