🇲🇽❗️Cable FX Macro Weekly Note: Mexico Sept. Consumer Prices

**As seen in Risk In The Week report 10/06/23, subscribe at cablefxm.co.uk/reports

Mexico's August consumer prices slowed to 4.64% Y/y from the prior 4.79%, this was slightly above market expectations. The core figure rose 6.12% Y/y vs the consensus of 6.12%, this was the slowest pace since December 2021. There was a strong decline in transport prices, the figure slowed to 0.19% M/m from 0.52%, furniture prices deflated by 0.23%, and food prices eased to 0.70%. Analysts point out base effects and weather-related supply constraints keeping food inflation high. Adding to price pressures, resilient growth is likely to keep Banxico in check, a recent survey compiled by Bloomberg saw economists revising Q3 and Q4 GDP forecasts higher to 2.8% and 2.2%, respectively. The first half of September saw a slowdown in both headline and core figures, the latter softened to 5.78% Y/y from the prior 5.96%, this compares to a rate of 8.27% a year ago. However, there was a rebound in the bi-weekly metrics from both goods and services, the broad bi-weekly core CPI printed at 0.27% from a prior 0.08%, this was the highest figure since the last week of March. Despite the meaningful slowdown in core CPI, Banxico delivered a hawkish hold during its last meeting, the policy rate was held at 11.25%. The desk at BBVA said that this could be an opening door to the start of Banxico’s easing cycle, however, they do not see the central bank slashing rates until next year. BBVA sees Mexico CPI extending declines. Separately, a survey compiled by Citi showed economists' expectations of a Banxico 25bps rate cut pushed to March from February. The same survey pencils Mexico's inflation at 4.7% in 2023 and 4.0% in 2024. While we have seen relief in headline and underlying prices, inflation remains above target and domestic growth expands above potential, the proposed government spending plan adds to the mix, but none of this points to policy easing anytime soon. Finally, strategists at Commerzbank noted the magnitude of the Mexican peso losses in recent days, they said that support from Banxico’s restrictive monetary policy may have peaked. Commerzbank flagged that MXN depreciation risks are building up, this factor will play a key role in further deflationary progress. A weak peso may delay improvement in the inflation front, this could force Banxico to stay restrictive for longer.