Central Bank Reports Decline in Annual Inflation to about 3.6 Percent in 2009, but Increase Very Likely in 2010

SourceMex Economic News & Analysis on Mexico, January 13, 2010 | Go to article overview
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Central Bank Reports Decline in Annual Inflation to about 3.6 Percent in 2009, but Increase Very Likely in 2010


President Felipe Calderon's administration, with the help of the central bank (Banco de Mexico), managed to keep annual inflation in Mexico at about 3.6% in 2009, but the elimination of fuel subsidies, along with a sharp increase in consumer goods at the start of the year, will almost certainly increase the 2010 inflation rate above last year's level.

In a report released Jan. 7, the central bank reported the consumer price index (Indice de Precios al Consumidor, INPC) at 0.41% in December, which brought annual inflation to 3.57%. This was the lowest annual inflation rate since 2005, when the rate was 3.33%. The 2009 rate was a sharp contrast to 2008, when it reached 6.53% because of the sharp increase in international commodity prices (see SourceMex, 2009-01-14).

Analysts said the lower inflation rate in 2009 was the result of relatively stable prices for energy and for some agricultural products.

The central bank said the rate was lower than the average of 3.81% projected by private analysts. "[This rate] was significantly lower than the projections obtained during the course of the year," said the bank, which is also known as Banxico. In addition, the rate was only slightly higher than the government's target of 3% for the year.=20

Still, despite the lower overall rate for 2009, there were increases in several important goods and services during the year, including sugar, peaches, flour and corn flour, chicken parts, and air transportation.

Despite the lower rate for 2009, inflation is sure to spike in 2010 because of the government's decision to eliminate a fuel subsidy (see other story this issue of SourceMex), along with the decision by Congress to increase value-added taxes (impuesto al valor agregado, IVA), income taxes (impuesto sobre la renta, ISR), and other taxes as part of the 2010 revenues budget (see SourceMex, 2009-11-04).

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