Mexico’s Prices Fell Again in June. Core Inflation Rose Again.

Macro

Key Facts

—The headline. Annual inflation fell to 3.37% in June from 3.94% in May, a second month inside target.

—The divergence. The index fell 0.27% on the month while the core index, which strips out the volatile items, rose 0.24%.

—The repeat. May did the same, with the index down 0.21% and the core up 0.22%.

—The sticky part. Core inflation is 4.03% annually, still above the band’s ceiling of 4%.

—The driver. Fruit and vegetable prices fell 8.99% in a single month.

—The warning. Avocado rose 24.53% in the same release.

Mexico inflation fell to three point three seven percent in June, its second month inside the central bank’s target band and its best reading of the year. Read one line further and the number stops being a disinflation story.

The consumer price index dropped by zero point two seven percent on the month, the first negative June reading in at least a decade. Over the same month the core index, which strips out the volatile items, went up by zero point two four percent.

Those two lines point in opposite directions. That is the whole story, and almost nobody has said it out loud.

Mexico inflation is falling because of vegetables

Look at what actually moved. Fruit and vegetable prices fell by eight point nine nine percent in a single month, and the non-core basket carried the headline down with them.

The annual headline rate went from three point nine four percent to three point three seven, a fall of nearly six tenths of a point. The core rate went from four point one nine to four point zero three, a fall of about a sixth of a point.

Do the division. Core inflation supplied barely a quarter of the headline’s improvement, and perishable food supplied the rest.

The same release shows how fragile that is. While the fruit and vegetable basket collapsed, the price of avocado rose by twenty-four and a half percent.

This is the second month in a row

The pattern is not a June oddity. In May, according to the statistics agency’s own monthly bulletin, the headline index fell by zero point two one percent while the core index rose by zero point two two.

The May bulletin also names the culprit. Electricity fell by almost eighteen percent as a seasonal warm-weather tariff took effect in eleven cities, and green tomatoes fell by nearly twenty-nine percent.

A subsidised electricity tariff and a good harvest are doing the disinflation. Neither is a judgement about demand in the Mexican economy.

The rest of that May list reads like a greengrocer’s ledger. Cucumber fell by nearly a third, chilli and lime by roughly a fifth each, and eggs by close to five percent.

Against them, the risers were the things households cannot skip. Owner-occupied housing, cooking gas, chicken and the corner taquería all went up.

Look at the annual non-core rate to see the scale of it. A year ago it ran above five percent; by May it was near three; in the first half of June it was under two.

Services are the number that decides rates

Inside the core, goods rose three and a half percent over the year while services rose almost four and a half. The gap between them is nearly a full percentage point.

Services also run more than a point above the headline rate that generated the cheerful morning coverage. Restaurants, rents and taquerías all pushed higher again in June.

The central bank stopped cutting in June, holding at six and a half percent in the first unanimous vote of the cycle. It has said it wants evidence of sustained core deceleration before moving again.

Here the arithmetic gets genuinely interesting. Core inflation now sits three hundredths of a percentage point above the top of the tolerance band, having fallen at each of the last four readings.

One more print like this and the board’s stated condition is met, on paper. Whether it believes a core rate pulled down while services accelerate is another question entirely.

One line for anyone holding pesos

A policy rate of six and a half percent against a headline of three point three seven leaves a real return above three points. Measured against core, the cushion is closer to two and a half.

That difference is what the carry trade actually prices, and it is why the composition of this release matters more than its headline. There is one further figure worth carrying away.

Restaurants and lodging carried an annual rate near seven percent in May, and financial services above six. These are the prices a resident feels rather than reads.

The statistics agency also publishes a minimum-consumption basket for the poorest households. In May it rose faster than the headline index, which is a reminder that a national average is not what anyone actually pays.

What is Mexico inflation now?

Annual headline inflation was three point three seven percent in June, inside the central bank’s target of three percent give or take one point.

Why does core inflation matter more?

It excludes food and energy, whose prices swing on harvests and tariffs. The bank treats it as the underlying trend and it remains above target.

Will the central bank cut again?

It has guided towards holding for a prolonged spell. Core is now barely above the band’s ceiling, but services inflation is still accelerating.