Inflation in the first half of March again exceeded market expectations, showing a rebound of 4.63% on an annual rate, mainly driven by a strong increase in the agricultural sector. According to data published this Tuesday by INEGI, inflation advanced 0.62% in contrast to the immediate half-month. Within this, underlying inflation, which excludes goods and services with the most volatile prices, increased by 0.22%, with the advance of merchandise prices by 0.20% and services by 0.25%. On an annual rate, the underlying, which also determines the inflationary trend in the medium and long term, stood at 4.46%, so it remains above its historical average, despite the weak economic growth and the appreciation of the exchange rate. Regarding the price index, non-underlying inflation grew 1.96% on a biweekly rate. Within this, the prices of fruits and vegetables rose 8.34% and those of energy and government-approved tariffs, 0.48%. Inflation exceeds Banxico's target in February: it stands at 4.02%. On an annual rate it skyrocketed to 5.18%, with the component of fruits and vegetables returning to double-digit increases of 23.91% on an annual rate and 8.34% on a monthly basis, the highest increase for any half-month since October 2006. The data will be reviewed in the meeting that the Bank of Mexico's (Banxico) board of governors will have this week, in an environment of clear division among market projections, since while its officials have been emphatic about wanting to continue lowering the interest rate, analysts agree that the scenario is challenging as the conflict in Iran added greater challenges. For example, for this reading, the prices of energy and tariffs registered a biweekly increase of 0.48%, with still limited effects of the international oil price shock on energy, however, Banamex analysts warned that they will manifest in the following half-months. In addition, effects are still expected from the increase in tariffs for countries without a trade agreement with Mexico, labor costs, a summer shock from the soccer World Cup, as well as possible second-order effects derived from higher energy prices. Effects that could also be partially offset by the appreciation of the exchange rate compared to last year, the low inflation of producer prices and an economic growth.
