Inflation in Mexico in August reached 8.7%, exceeding market expectations, driven mainly by increases in food prices, according to data published by the National Institute of Statistics and Geography (Inegi).

The National Consumer Price Index (INPC) presented a variation of 0.70% in August compared to the previous month to bring annual general inflation to 8.70%, which represents the highest rate since December 2000, when it reached 8.96%. In the same month of 2021, monthly inflation was 0.19% and annual 5.59%.

The increase reinforces forecasts of an aggressive interest rate hike by the Bank of Mexico (Banxico) when it meets this month. Previous estimates showed a rate of 8.13% year-on-year for the National Consumer Price Index.

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The underlying price index, considered a better parameter to measure the general scarcity because it eliminates items with high volatility in their prices, registered an advance of 0.8% monthly and 8.05% annually, accumulating 21 consecutive months on the rise. The non-core price index increased 0.39% at the monthly rate and 10.65% at the annual rate.

Within the underlying index, at a monthly rate, the prices of merchandise rose 1.14% and those of services, 0.39%.

Within the non-core index, at a monthly rate, the prices of agricultural products rose 0.98% and those of energy and tariffs authorized by the government, 0.11%.

The Bank of Mexico raised its expectations for 2022 inflation last week, warning that the effects of shocks on prices could be prolonged and even worsen, and reiterated that the magnitude of future increases in the key interest rate would take into account prevailing conditions.

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Thus, Banxico expects headline inflation to reach 8.1% in the fourth quarter of 2022 and core inflation to reach 7.6%, from previous estimates of 6.4% and 5.9% respectively, well above the entity's fixed target of 3%.

In early August, the bank raised its benchmark rate for the tenth time in a row to a record high of 8.5%, in a new attempt to cool down inflation, which has hit more than 20-year highs.

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