Mexico’s Annual Headline Inflation Cools, however Core CPI Jumps, USD/MXN Shrugs Off Knowledge

INFLATION KEY POINTS:

• Mexico’s headline CPI cools down to five.88% y/y in June from 5.89% y/y in Might
• In the meantime, core inflation soars to 4.58% y/y from 4.37% y/y within the earlier month, an indication that inflationary pressures have gotten extra widespread
• Inflation outcomes fail to set off a robust response in USD/MXN as risk-off temper seems to dominate markets

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Mexico’s headline inflation cooled reasonably final month relative to Might’s outcomes, as decrease livestock costs helped offset will increase in a number of different sources, equivalent to items and companies. In accordance with INEGI, the June shopper value index rose 0.53% on a month-to-month foundation, bringing the 12-month studying to five.88% from 5.89% in Might, barely above expectations. In the meantime, core inflation, which excludes unstable objects, climbed 0.57% m/m. This end result pushed the annual print to 4.58%, its highest degree since December 2017, an indication that upward strain on costs is turning into broad-based and pervasive.

The desk under summarizes the information launched this morning

Supply: DailyFX Financial Calendar

In accordance with its mandate, Banxico targets an inflation fee of three%, with a tolerance of 1 share level above or under that degree. Provided that each headline and core CPI at the moment sit effectively above the higher restrict of the variability vary, the central financial institution will likely be beneath extra strain to boost rates of interest once more within the coming months to preserve credibility, include inflation and guarantee expectations don’t change into unanchored.

In Mexico, financial exercise has began to enhance and dangers across the progress outlook have change into extra balanced within the midst of rising vaccinations charges, increased oil costs, file excessive remittances and robust exterior demand, primarily from the USA. The considerably favorable backdrop affords Banxico extra flexibility to proceed tightening financial coverage with the intention to stop second-round results on the economic system’s value formation course of.

In any case, Mexico’s CPI outcomes are not triggering any main response within the USD/MXN trade fee this morning as risk-off temper dominates the markets. On the time of writing, the pair is up 0.76% to 20.10 amid sturdy safe-haven demand and decreased urge for food for EM FX. It’s value noting that the greenback may speed up its good points towards the Mexican peso if the fairness sell-off intensifies all through the day. Over the medium time period, nevertheless, the Mexican peso outlook stays constructive, supported primarily by its increased carry benefit within the foreign exchange market.

USD/MXN 5-MINUTE CHART

EDUCATION TOOLS FOR TRADERS

—Written by Diego Colman, DailyFX Market Strategist

Observe me on Twitter: @DColmanFX