Mexico early-May prices fall by more than expected

(Reuters) -Consumer prices in Mexico fell by more then expected in the first half of May, driving annual inflation to its lowest in 20 months in the first figures released after the central bank decided to pause interest rate hikes.

Prices decreased 0.32% in early May, national statistics agency INEGI said on Wednesday, with 12-month headline inflation reaching 6.00%, the lowest since September 2021.

The fresh data come as Banxico, as the local central bank is known, kept its benchmark interest rate steady at 11.25% last week in a unanimous decision, breaking a nearly two-year rate-hike cycle.

Still, the bank forecast inflation to reach its 3% target only in the fourth quarter of 2024, having suggested it would need to maintain the key interest rate at current levels for an extended period.

Economists polled by Reuters expected a 0.19% drop in consumer prices in the first half of May, while the annual rate was seen reaching 6.15%. Both actual figures came in below the lowest response in the survey.

Inflation in Latin America’s second-largest economy “is set to drop further over the coming months,” said Kimberley Sperrfechter, an emerging markets economist at Capital Economics, although noting strong wage growth should keep it above the central bank’s target range until late next year.

“As a result, while Banxico’s tightening cycle has ended, we think that rate cuts will only come onto the cards in late Q4 and that monetary policy will be kept tighter than most expect over the next couple of years.”

Mexico’s closely watched core price index, which strips out some volatile food and energy prices, climbed 0.18% in early May, a note that challenges are still in place even though it was also below consensus of 0.21%.

The annual core index came in at 7.45%, against a median forecast of 7.49%.

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