Faculty Publications
Decomposing Supply and Demand Driven Inflation in Mexico: Evidence from Sectoral Analysis
Document Type
Article
Keywords
Inflation Decomposition; Supply and Demand Shocks; Mexico; Sectoral Analysis; Monetary Policy
Journal/Book/Conference Title
Economics Letters
Volume
264
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% 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.
Department
Department of Economics
Original Publication Date
4-13-2026
DOI of published version
10.1016/j.econlet.2026.112980
Recommended Citation
Chen, Zhengyang; Colunga-Ramos, Luis Fernando; and Perales, Jose Angel, "Decomposing Supply and Demand Driven Inflation in Mexico: Evidence from Sectoral Analysis" (2026). Faculty Publications. 6954.
https://scholarworks.uni.edu/facpub/6954
