Mexico CPI decreased 0.53% 2w/2w in the first fortnight of May as a result of the seasonal adjustments in electricity tariffs and reductions in perishable prices, while core inflation was 0.03% 2w/2w, much lower than market expectations, as the food and services components registered low levels (-0.02% and 0.04%). In annual terms, annual inflation declined to 2.9% y/y, with core inflation at 2.4% y/y.Barclays says “We are cutting our year-end inflation forecast. Inflation has been surprising to the downside in a constant manner. We are adjusting our year-end forecast to 2.6% y/y from 2.8% previously, as the core component will likely remain well behaved during the rest of the year, closing at 2.7%.”The central bank recently revised down its GDP forecast, the output gap remains negative and inflation is now below target. Last year, Banxico surprised the market with a rate cut at the June 2014 meeting. If the expectation of a rate hike in the US were not present, we could start talking about a rate cut again. Accordingly, while the US Fed figures it out its decision, we can discard any tone of hawkishness in the coming monetary policy meetings, and the bank will likely remain on hold June 4.
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