Mexico inflation slows more than expected ahead of rate decision

(Reuters) – Mexico’s annual inflation hit its lowest in more than two years ahead of a monetary policy decision on Thursday that is expected to leave interest rates at a cycle high as the consumer price index remains above target.

In Latin America’s second largest economy, 12-month headline inflation reached 5.18% in the first half of June, data from statistics agency INEGI showed, slowing further but far from the central bank’s official target of 3%.

The lowest since March 2021, the level overshot expectations of 5.30% in a Reuters poll of economists and reinforced bets the country’s monetary authority will keep its benchmark interest rate steady when it announces its next decision later on Thursday.

A rate cut remains unlikely after the Bank of Mexico paused a nearly two-year rate hike cycle in May, suggesting it might need to maintain rates at current levels for an extended period to bring inflation down to target.

INEGI data showed that annual core inflation, which strips out some volatile food and energy prices and has been a cause of concern for the central bank, slid to 6.91% in the first two weeks of June.

Economists polled by Reuters had expected it to hit 7.02%.

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