Economic Indicators

Mexico’s inflation slows for 7th fortnight in a row, rates still seen on hold

2023.08.24 11:24


© Reuters. FILE PHOTO: Customers shop fruit at a stall in an outdoor market in Mexico City, Mexico January 22, 2022. Picture taken January 22, 2022. REUTERS/Luis Cortes/File Photo

By Gabriel Araujo

(Reuters) -Mexico’s headline inflation slowed in early August for the seventh consecutive two-week period, official data showed on Thursday, meeting market expectations as the country’s central bank has signaled an “extended” period of high interest rates.

In Latin America’s second-largest economy, the headline inflation rate hit 4.67% in the 12 months through early August, down from 4.79% at the end of July and its lowest since March 2021, data from statistics agency INEGI showed.

The latest number, in line with projections from economists polled by Reuters but still above the central bank’s target, is likely to reinforce bets it will hold its key lending rate steady at an all-time high of 11.25% for longer.

“The headline inflation rate declined further, but sticky services inflation will remain a concern for the central bank,” Capital Economics’ emerging markets economist Kimberley Sperrfechter said in a note to clients.

“This, alongside hawkish comments from officials, means that Banxico will be the last major central bank in the region to ease monetary policy, around the turn of the year, and interest rate cuts will be more gradual than most currently anticipate.”

Regional peers Brazil and Chile have already kicked off easing cycles.

Meanwhile, the Bank of Mexico voted earlier this month to hold its benchmark interest rate at 11.25% for the third consecutive time, warning it would be necessary to maintain it for an “extended” period to meet its inflation target of 3%, plus or minus one percentage point.

Banxico, as the monetary authority is also known, hiked interest rates by a total of 725 basis points between June 2021 and March 2023 to tame high inflation.

Mexico’s closely watched core price index, which strips out some volatile food and energy prices, reached 6.21% in the year through the first half of August, INEGI said, slightly below the 6.23% expected by economists.

In the fortnight alone, the agency added, headline prices climbed 0.32% while the core index was up 0.19%.

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