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Inflation Observatory

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Downward pressure remains contained

Thu, Mar 19 2009, 08:59 GMT
by BBVA Bancomer Team

BBVA Bancomer

• Energy prices drove the increase in headline inflation

• Price increases were widespread across core components

• Downside risks due to increasing economic slack

Core CPI increased for the second straight month

February’s headline consumer prices exceeded our expectations by coming in at 0.4%, compared to our forecast of 0.3%. This is the second month in a row of positive headline inflation after falling in the last three months of 2008. The index was boosted predominately by a 3.3% increase in energy prices, which added 0.3pp to inflation. Even though electricity and natural gas prices exhibited no change, gasoline prices greatly impacted headline inflation by soaring 8.3%. On the contrary, a 0.1% decline in food prices subtracted 0.1pp from the overall index. The increase in food away from home was more than compensated by the decrease in food at home. Looking forward, energy prices may have a negative impact on March’s headline CPI because, thus far, the average price of gasoline has remained relatively stable and the price of natural gas has fallen.

Core consumer prices, on the other hand, met our expectations by increasing steadily at 0.2%. In contrast to January when shelter prices largely influenced inflation, February felt no effect from that sector. The 0.1% rise in rent of primary residences and owner’s equivalent rent was offset by a 1.8% fall in the cost of lodging away from home. In fact, this month’s figures saw a widespread increase across all other sectors, but were mostly driven by a 2.2% rise in the cost of private transportation. This category was primarily influenced by a 0.8% increase in the price of new automobiles, which rose for the second month in a row after falling for five straight months.

• Download full Inflation Observatory with charts

Published on  Thu, Mar 19 2009, 09:02 GMT