The latest inflation data for the United States and Mexico were released this week, showing a slight but continued improvement.
In the case of the United States, prices in April increased 0.4% compared to March, with which inflation in annual terms decreased from 5.0 to 4.9 percent. This figure was in line with market expectations and represents the lowest annual increase since April 2021.
In the case of the core component, the increase was 0.4%, with which core inflation in annual terms fell from 5.6 to 5.5%, also in line with the consensus of market expectations.
Headline inflation in annual terms has been falling for 10 consecutive months after reaching a peak of 9.1% in June last year, while core inflation resumed its downward trend after rising in March.
However, for the second consecutive month, core inflation was above headline inflation.
This is largely explained because the most important source of relief comes from a decrease in energy prices that fell 5.1% (highlighting a 12% drop in gasoline) while the prices of services continue to be under great pressure, registering an increase of 6.8% (highlighting an increase in transportation prices of 11% and 8.1% in housing services).
However, the equivalent income indicator slowed down compared to previous months, presenting its lowest monthly reading in more than a year.
The expectation is that the pressure in this sector will continue to moderate as the housing market continues to weaken as a result of the increase in interest rates and a greater credit restriction by the segment of regional banks.
Based on this expectation and more favorable comparison bases (remember that the inflation peak was registered in June of last year), the market consensus is anticipating a decrease in annual inflation of 4.9% in April to a range of 3.0-3.5% at the end of June.
In the opinion of this columnist, the downward trajectory of inflation could be slower than what the market is discounting.
In the case of Mexico, prices in April decreased 0.02% (slightly less than expected based on consensus expectations). With this monthly figure, inflation accumulated in the last 12 months fell from 6.85% in March to 6.25% in April, registering its third consecutive month of decline.
For its part, core inflation in April was 0.39% (slightly below consensus), with which core inflation in annual terms fell from 8.09 to 7.67 percent.
Although inflation could accelerate its downward trajectory in the coming months, as the annual comparison bases become more favourable, the price dynamics in the service sector, which in turn reflects higher labor costs, maintains significant pressures.
The data will be crucial for Banxico’s monetary policy decision on May 18, in which market expectations have been changing in recent weeks.
After the last monetary policy announcement, on March 30, market expectations pointed to an additional rise of a quarter of a point on May 18 to leave the funding rate at a new maximum of 11.50 percent.
However, in recent days the market has begun to reinforce its bets that Banxico will leave the funding rate unchanged.
