Headline inflation in Mexico rose slightly in the first half of June, coming in close to what analysts expected and strengthening market views that the central bank will stay on track to gradually reduce interest rates.
Consumer prices rose 0.10% during the first half of June, slightly below the 0.11% that analysts had forecast in a Reuters poll, according to data released Tuesday by Mexico’s national statistics agency.
The most recent reading indicates inflation pressures appear to be contained, even as underlying consumer price inflation looks to be rising a touch faster than the prior month.
Core inflation is still sticky
The core inflation index, a pivotal measure that excludes the effects of volatile commodities like as food and energy, increased by 0.22% in the first half of June over the previous month.
This number is frequently examined by policymakers since it provides a fuller picture of underlying pricing movements.
Although the monthly headline and core statistics were roughly consistent with market expectations, the annual inflation rate rose more significantly.
Consumer prices increased by 4.51% in the year ending in mid-June, up from 4.22% the previous year.
This pushes inflation further above the Bank of Mexico’s target range of 3%, plus or minus one percentage point.
Mexico inflation: Policy path remains clear
But the new data, while offsetting the annual fall in inflation, is unlikely to persuade the central bank to suspend its course of monetary easing.
The benchmark rate, which the Bank of Mexico lowered by 50 basis points with its third consecutive cut, touched 8.5% in May, the lowest level for the central bank since August 2022.
This easing cycle represents a reversal of the series of aggressive rate hikes seen in the past couple of years as the bank attempted to bring down inflationary pressures caused by disruptions in global supply chains and higher prices of commodities.
Inflation remains manageable and economic growth moderate, prompting almost all market participants to expect the central bank to announce yet another 50 basis points of rate cuts later this week.
This would strengthen domestic demand in the second-largest economy in Latin America, and would maintain the cost of borrowing following the bank’s easing plan.
Market outlook
The congruence of inflation statistics and analyst estimates suggests that monetary policy adjustments will be consistent and predictable in the near term.
The central bank has indicated that its choices will remain data-driven, balancing inflation trends with economic activity indicators.
As headline inflation stays over target while moving within expected ranges, investors and analysts are likely to maintain their expectations for a prolonged easing cycle.
However, the optimal pace of rate decreases in the coming months will be determined by ongoing monitoring of core inflation readings and potential price pressures.
Meanwhile, the Bank of Mexico’s measured approach maintains financial market stability and demonstrates confidence in its ability to lead inflation toward its long-term aim without jeopardising economic recovery.
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