Abstract
We decompose Mexico’s inflation into supply- and demand-driven components across 31 CPI sectors from 2006 to 2024. To identify which sectors create inflation swings versus steady pressure, we construct an importance score combining correlation with aggregate inflation and average contribution size. Food ranks highest for both inflation types. This differs from developed economies where services dominate demand inflation. Mexican services contribute 24% of demand-driven inflation on average but fluctuate little, acting as a persistent floor that explains slow disinflation since 2023. Housing plays almost no role despite representing 18% of the CPI basket because prices there barely move. Structural VAR analysis validates these patterns: demand inflation responds to domestic monetary expansions while supply inflation reacts to global supply chain disruptions.
Zhengyang Chen
Assistant Professor in Economics
My research interests include Macroeconomics and Monetary Economics, Time Series Analysis and Financial Markets.