Mexico: Inflation eases but MXN leaves rate hike on the table - BBVA

Javier Amador, economist from BBVA, point out that inflation eased during the first half of October as expected but Mexican peso pressures keep a possible interest rate hike from Banxico on the table. 

Key Quotes: 

“Headline inflation came in below expectations. It increased 0.40% HoH in the first fortnight of October, which was lower than our slightly below-consensus forecast (BBVA Research: 0.45%, consensus: 0.47%). In annual terms, it eased to 4.94% from 5.17% in the previous fortnight.”

“In annual terms, Core inflation moderated slightly from 3.78% in the previous fortnight to 3.74%.”

“The context of inflation and rates point to an extended pause, particularly considering the little usefulness of the policy rate to revert the temporary factors that are behind the temporary rebound in headline inflation and the stickiness in core inflation, which in our view should be viewed as a possible development considering all the factors that have affected inflation recently. Both headline and core inflation will most likely start to cleary resume their downward trend in November.” 

“We still expect Banxico to hold rates steady for the rest of 2018 but the outcome of the Mexico airport survey and its effect on the MXN could end up changing our call.”