Mexico’s inflation continued to ease in the first half of October but remains above the central bank’s target, official data showed on Tuesday, in an indication the local monetary authority will maintain borrowing costs at high levels in the near term.
Annual headline inflation in Latin America’s second-largest economy hit 4.27% in the period, statistics agency INEGI said, down from 4.45% at the end of September and undershooting forecasts of 4.38% in a Reuters poll of economists.
Inflation in Mexico has been slowing after reaching a 22-year high last year, as the central bank keeps its monetary policy at a restrictive level so it can bring it back to its 3% target, plus or minus one percentage point.
The central bank, known as Banxico, has been holding its key interest rate at 11.25% since March following a nearly two-year rate-hike cycle during which it added 725 basis points of hikes to combat rising consumer prices.
Analysts predict rates to remain on hold until early 2024 as inflation is currently projected to converge to the bank’s target in the second quarter of 2025, later than initially forecast by Banxico.
According to INEGI, the headline inflation rate in the first half of October was 0.24%, below the 0.35% estimated in the Reuters poll, but core prices overshot the 0.20% forecast and rose by 0.24% in the period.
A breakdown of the statistics agency’s data showed some worrying signs that are likely to back views that the central bank will not cut rates until next year, Capital Economics’ emerging markets economist Kimberley Sperrfechter said.
“The fall in Mexico’s headline inflation rate to a 31-month low masked a worrying pick-up in services inflation,” she wrote in a note to clients.
“This, combined with rapid wage growth and robust economic activity, supports our view that Banxico will only shift towards interest rate cuts in early 2024 and that the easing cycle will proceed more gradually than most currently anticipate.”
Banxico has as stated priority maintain “low and stable” inflation.
TYT Newsroom
