January 24, 2025
Mexico’s annual inflation rate slowed to its lowest level in nearly four years in the first half of January, according to official data released on Thursday. This price level is likely to encourage the central bank to continue reducing borrowing costs.
In Latin America’s second-largest economy, 12-month headline inflation was reported at 3.69% in early January by the statistics agency INEGI. This is the lowest rate since February 2021 and falls within the central bank’s target range of 3%, plus or minus one percentage point.
Annual inflation was lower than both the previous month’s 4.44% and the 3.78% forecast by economists polled by Reuters. The slowdown in consumer price growth was driven by lower non-processed food costs, which helped offset a slightly higher-than-expected reading in the core index. The core index is considered more reliable by some as it excludes volatile energy and food prices.
In December, the Mexican central bank, known as Banxico, implemented its fifth interest-rate cut of the year, reducing its key lending rate by 25 basis points to 10.00%, citing progress on inflation. At that time, the bank’s board indicated that further and larger cuts could be considered in the future. However, some economists believe that external pressures and an increase in core prices could complicate efforts to accelerate monetary easing.
“With the U.S. Federal Reserve set to pause its cutting cycle and uncertainty around tariffs, we think it’s more likely that Banxico will deliver another 25bp cut,” said Kimberley Sperrfechter, an emerging markets economist at Capital Economics.
Mexico is preparing for additional price pressures as U.S. President Donald Trump threatens tariffs on its exports and mass deportations. Core inflation rose by 0.28% in early January, with the annualized core rate reaching 3.72%, exceeding market expectations of 3.68% and the previous month’s 3.62%.
Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, expressed concerns over core prices and other factors currently facing the central bank. “Deteriorating external and domestic political conditions, which have pressured the Mexican peso, could constrain policymakers’ flexibility if these trends persist,” he said.
Banxico is scheduled to announce its next rate decision on February 6.
Source: (Reuters)
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