- Mexico: Although inflation surprises on the downside, basic prices rebound in the first half of January; Monthly GDP showed a rebound in November, despite the annual slowdown
MEXICO: ALTHOUGH INFLATION SURPRISES ON THE DOWNSIDE, BASIC PRICES REBOUND IN THE FIRST HALF OF JANUARY
During the first half of January inflation decelerated more than expected to 3.69% from 3.99% (vs. 3.76% consensus from the Citi Survey), placing itself for the second consecutive reading within Banco de México’s inflation target rate. However, core inflation picked up to 3.72% from 3.69% (vs. 3.67% consensus) as a result of an increase in the goods component to 2.75% (2.50% previously), while services continued to decrease to 4.82% (4.99% previously). On the other hand, non-core inflation slowed down to 3.60% (4.91% previously), with agricultural products decelerating to 1.06% (4.54% previously) due to better climate conditions, while energy and government tariffs stood at 5.41%. In biweekly terms, headline inflation rose to 0.20% (0.04% previously, 0.27% consensus from the Citi Survey), the core component increased by 0.28% (0.06% previously, 0.23% consensus), and non-core inflation fell by -0.04% (-0.02% previously). Although we believe inflation risks remain biased to the upside (highlighting the potential impact of tariff measures between Mexico and the U.S. and price pass-through due to greater depreciation), this inflation reinforces Banxico’s intentions to increase the magnitude of the benchmark interest rate cut, from 25 to 50bps, at the February 6th Monetary Policy meeting, hence Banxico’s reference interest rate could go from 10.0% to 9.50%. Although the 3-month implied rate stands at 9.38% and converges to a 9.25% rate in March, which implies one cut of 50bps and another of 25bps, we maintain a year-end rate of 8.50% as setbacks in headline inflation are still on the table (chart 1).
MONTHLY GDP SHOWED A REBOUND IN NOVEMBER, DESPITE THE ANNUAL SLOWDOWN
In November, the Global Indicator of Economic Activity (IGAE) slowed to an annual growth rate of 0.5%, compared to 0.8% in the previous month. By components, industry fell by -1.4% (-2.1% previously), due to weakness in manufacturing (-0.2%), a sharp decline in construction (-4.2%), and mining (-4.7%). Services also showed a slowdown, from 2.7% to 1.6%, with wholesale trade falling by -1.0% and retail trade slowing to 3.6%. The largest increase was observed in professional services, with growth of 8.2%. Primary activities rebounded by 0.2% (-4.8% previously) (chart 2).
In seasonally adjusted monthly terms, the IGAE rebounded by 0.4%, with a slight increase in industry (0.1%) and a decline in primary activities (-1.4%), while services rose by 0.5%. From January–November 2024, the IGAE showed an increase of 1.6% compared to the same period of the previous year. In the coming months, the pace of economic activity is expected to continue slowing due to weaker consumption and increased uncertainty, which could impact industrial sector investment, leading to further downward revisions in growth expectations for 2025. Addressing structural issues in the industrial sector and improving business confidence will be crucial for maintaining long-term economic stability. It will be important to monitor the development of commercial activity between Mexico and the United States, as the imposition of tariffs could affect key sectors.
—Rodolfo Mitchell, Brian Pérez & Miguel Saldaña
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.