Mexico’s headline inflation accelerated in the first half of September, approaching the top of the central bank’s target range and broadly in line with market forecasts.
Consumer prices climbed 3.74% year-on-year through mid-September, according to data published Wednesday by the national statistics agency INEGI, versus 3.49% in the previous results.
The latest number comes in just below the 3.77% rate forecast by analysts surveyed by Reuters, while the inflation dynamics in the second-largest economy in Latin America are still being closely watched.
The result is, however, a slow but steady upward trend that may influence monetary policy in the months to come.
Market and central bank outlook
Economists predict that inflation will end the year at 3.9%, over the Bank of Mexico’s 3% midpoint objective.
The bank’s mandate allows for swings of plus or minus one percentage point, indicating that the current pace is approaching the top bound.
This track demonstrates a delicate balance for policymakers. While inflation remains within the official range, the rising trend may dampen prospects for further rate decreases.
Banxico has kept its benchmark interest rate elevated in recent quarters, citing the need to cement disinflationary advances while maintaining confidence.
Monthly and core dynamics
In the first half of September, consumer prices increased by 0.18% month-to-month.
This is an increase from a 0.02% drop in the previous period and nearly matches the 0.19% uptick expectation.
The acceleration suggests that price pressures have returned, albeit not in the way that was expected.
At the same time, the monthly increase for the core consumer price index, which excludes food and energy categories, was 0.22%.
That was an increase from 0.09% in the previous reading, indicating underlying persistence.
Core inflation is considered a major indicator for Banxico in relation to the course of monetary policy, representing more structural aspects of price dynamics.
Implications for policy
The continuance of price growth near the central bank’s upper tolerance zone may fuel predictions that policymakers will remain cautious.
While headline inflation remains manageable in comparison to recent peaks, the acceleration in both headline and core measures underlines the challenges of maintaining a downward trend.
Market players are looking for indicators of how Banxico would adjust its stance in light of these developments.
The forecast that inflation will end the year at 3.9% indicates persistent pressures that may delay any meaningful policy easing.
Regional context
Mexico’s inflation trajectory is consistent with broader regional patterns, as major Latin American countries are currently in the late phases of disinflation.
Despite high price increases following the epidemic and global commodity shocks, central banks across the region have mainly succeeded in bringing inflation closer to their targets.
However, unequal progress remains a distinguishing feature.
In Mexico, maintaining credibility and anchoring expectations is important to economic stability.
According to the most recent data, while inflation has slowed significantly from double-digit levels seen elsewhere in Latin America, it is still not completely risk-free.
Looking ahead
With inflation creeping up and the year-end market implied rate near 4%, Banxico rhetoric will continue to be in the spotlight.
Instability near its 2% target, where it remains for now, does no favours to those seeking an end to the current central bank tightening cycle, with the latter still repeatedly talking of the need to lock in some disinflation.
As INEGI’s data show, both headline and core components are flashing early signals of relative firmness in terms of continuing upward progress in early September.
Indeed, that underlines the argument for carefulness even as markets remain in a heated debate over when and how much rates should be changed.
It may very well be in the next months where inflation stabilises in Banxico’s comfort zone or not, is more prone to drift towards the upper bound, and could therefore affect policy and sentiment early going into the year-end.
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