Price-Setting and Exchange Rate Pass-Through in the Mexican Economy: Evidence from CPI Micro Data

As a consequence of the international environment, the currencies of many emerging market economies have experienced important depreciations in a context of high volatility in financial markets. The Mexican peso has not been the exception to the above situation. In this setting, the exchange rate pass-through into consumer prices deserves special attention as it allows us to evaluate the anchoring of inflation expectations in the Mexican economy. To address this issue, in this paper we use non-public micro data from the Mexican Consumer Price Index (CPI) to analyze the relation between exchange rate and price-setting in Mexico for the period between January 2011 and April 2016. Our estimates suggest that the exchange rate pass-through into consumer prices is low.