Mexico watch: April mid-month CPI; February IGAE

Power prices help CPI

Dropping faster than expected, Mexico's annual CPI fell to 4.69% in mid-April from 5.04% in March, statistics agency Inegi reported Tuesday, helped by the seasonal reduction in electricity rates, as well as weaker inflation in agricultural produce prices.

The result supports the steady reduction in consumer prices expected by the central bank, which called for annual CPI to reach 3.5% by year-end at its April 12 decision to hold the benchmark rate at 7.5%

General inflation in the first half of April reached -0.35% in a biweekly comparison. This result surpassed the average estimate of -0.27% in Citibanamex's most recent private sector survey.

"The larger-than-expected drop in Mexican inflation in the first half of this month reinforces our view that the next move in interest rates will be down. That said, the recent slide in the peso – if sustained – will keep policymakers in hawkish mood for the time being," said research firm Capital Economics in a note.

Energy prices fell 3.26% in the biweekly comparison, due to a 13.9% decline in electricity prices coming as summertime electricity rates went into effect at the start of the month. LP gas prices also fell 2.36%, while low octane gasoline prices increased 0.29% in the period.

Fruit and vegetable prices fell 0.93% in the biweekly comparison, while eggs also dropped 3.47%.

Mex econ surprises in Feb

Inegi reported that Mexico's IGAE economic activity indicator registered a 0.7% month-on-month improvement in February, as well as a 2.3% year-on-year increase (both results seasonally adjusted).

Though primary activity (raw material production) fell 0.6% on a monthly basis in real terms, the adjusted annual growth for the segment reached 8.8%.

Meanwhile, services (tertiary activities) grew 2.8% year-on-year and 0.7% month-on-month, while secondary activities (manufacturing) climbed 0.7% year-on-year and 0.4% month-on-month.

"The IGAE showed favorable performance [in February]," said Citibanamex in a note, adding that the monthly result was well above its forecast of 0.2%, while the 2.4% annual rate surpassed the consensus forecast in its survey (1.9%) and that of Bloomberg (2.0%). The bank said its 1Q18 GDP growth forecast remained 0.9%, but this was tied to the few working days in March with an earlier Easter holiday.

Joan Domene, an analyst at investor bank Invex, told local daily El Universal that consumption continues to be the key motor for economic growth in Mexico, even though some uptick in economic industrial activity is expected.

Domene suggested that the strength of the labor market and remittances ought to continue supporting consumption, even against continued uncertainty, high inflation and the high cost of debt acquisition.