How did the rains lower the prices of fruits and vegetables?

The rains positively affected the price of fruits and vegetables in Mexico, at least according to the most recent data. Here's the full report:

General inflation in Mexico surprised to the downside in the first half of July, falling below specialist expectations, due in part to economic stagnation and the contraction in fruit and vegetable prices, favored by the rainy season. , specialists said.

The overall price increase slowed to 3.55% at an annual rate, marking three consecutive downward periods, returning it to the Bank of Mexico's target range , according to data published Thursday by the National Institute of Statistics and Geography (INEGI).

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In the first half of July, the National Consumer Price Index rose 0.15% compared to the previous period , the lowest biweekly increase for that period since 2015.

The non-core price index, the most volatile component of inflation, advanced just 1.2% year-on-year , marking its lowest increase since the second half of October 2023.

The significant decline in annual headline inflation was explained by the high comparison base for non-core inflation in July 2024 , particularly for agricultural products, which will largely reverse in August, according to Banamex specialists.

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On the other hand, the sharp slowdown in inflation may be due to the stagnation of Mexico's economic activity, reflected in declines in consumption, fixed investment, construction, and automotive exports, said analysts at Grupo Financiero Base.

This weakness in economic activity is expected to continue for the rest of the year, which could further fuel inflation. Therefore, the Bank of Mexico (Banxico) is expected to make two cuts of 25 basis points each this year, closing the year at a rate of 7.5%, according to experts.

Fruits and vegetables fall

Fruit and vegetable prices fell sharply by 12.2% in the first half of July. , recalling that they reached their peak last year in a very challenging environment due to drought conditions. In the short term, the recent rainy season could be a positive catalyst, although prices will remain very volatile. , Banorte specialists commented.

Among the agricultural products with the greatest declines in the first half of last month were chayote, with an annual drop of 62.6%; onion, 29.1%; zucchini, 18.2%; orange, 16.2%; lettuce and cabbage, 14.1%; and carrots, 3.4% .

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In this context, Banorte specialists emphasized that the imposition of tariffs on Mexican tomato exports to the United States will be a risk factor, with somewhat uncertain effects in the medium term.

The other segment of non-core inflation that contributed to its deceleration was energy , whose annual increase was 0.9%, its lowest rate since the second half of January 2024. The lowest dynamism was concentrated in liquefied petroleum gas (LP), with a rise of 2.3%, and low-octane gasoline, with a decrease of 1.1%, while the outlook remains positive due to its external and internal determinants.

Moderate progress

Meanwhile, the underlying component of inflation, which includes goods and services whose prices are less volatile and which determines the long-term trajectory of inflation, ended a seven-week streak of acceleration, reaching 4.25% annually.

Within the economy, the slowdown came from the services sector, which stood at 4.49% , interrupting three consecutive fortnightly increases. The "other services" segment registered 5.36% after four periods of increases, while the housing sector reported a 3.4% increase, the lowest rate since the first half of February 2023.

On the other hand, the merchandise inflation segment reached 4.01% , marking 10 consecutive fortnights of upward inflation and sending no signs of a possible downward turning point.

This boost comes from its food-related segment, which reported a 5.12% increase , its largest increase since the second half of February 2024.

The main risk to underlying inflation is the continued rise in commodity prices, which could be pushed upward in the latter part of the year due to a depreciation of the Mexican peso, caused by seasonal effects, as well as risk aversion due to the protectionist policies of the Donald Trump administration, commented specialists from Grupo Financiero Base.

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OA