In July, economic data suggested the possibility that the Mexican economy is beginning to slow down.  The August data, however, once again surprised on the upside and confirmed that the Mexican economy remains on track to turn in the highest growth rate in more than a decade.  The peso suffered somewhat from the woes surrounding Argentina but recovered most of the lost ground in early November.

Economy surprises on the upside in August ...  According to preliminary information provided by the National Statistical Institute (INEGI), the economy grew by 7.7% in August over the same month last year.  The August result was well above last month’s 6.6% growth rate and also slightly exceeded market expectations.  Industry replaced services as the fastest growing sector, expanding at 8.0% year-over-year, closely followed by services with 7.8% annual growth.  As was the case with the overall result for economic growth, industrial production exceeded both the average estimates of the market and July’s growth rate, which had exhibited a temporary slump at 5.8% growth.  The key driver behind the strong performance in industry was mining, which grew by 9.1% year-over-year, due to higher oil production and increased output of metals mines.  The manufacturing industry registered a 8.7% annual expansion, once again propelled by the export-oriented maquiladora industry, which was up 12.8% over the same month last year, whereas the output in manufacturing industry producing for the domestic market increased by 8.3%.   

… and confirms the July slump as a temporary phenomenon.  Strong retail sales (+13.8% year-over year in August) and buoyant investment (August +12.6% yoy) confirmed that the July data releases, which in general surprised the market on the downside, were nothing but a temporary slippage and did not augur a significant slowdown in economic activity in the third quarter.  The only exception is unemployment, which increased from 2.0% in July to 2.6% in August and remained at a surprisingly high 2.5% in September.  Additional unemployment indicators corroborate the fact that unemployment is on the rise, despite the unrelenting growth Mexico is currently experiencing. 

Inflation exceeds expectations.  In October, consumer prices increased by 0.69%, slightly less than the 0.73% reported in September but higher than market expectations.  The annual rate remained virtually unchanged from September at 8.9%.  The October price increase followed price spikes in gas and fuels, electricity and local telephone calls, which accounted for one third of the observed consumer price hike.  In addition some agricultural goods increased the October price pressures.  Underlying inflation, which excludes the more volatile sections of the consumer price index, registered a lower increase in the order of 0.43%, taking the annual rate to 7.9%. 

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