Mexico’s headline inflation rate declined sharply in July, reaching its lowest level since December 2020, according to data released Thursday by the national statistics agency INEGI.
The annual inflation rate eased to 3.51%, down from 4.32% in June and slightly below economists’ expectations of 3.53%.
The latest reading signals a notable slowdown in consumer price increases in Latin America’s second-largest economy.
On a monthly basis, consumer prices rose 0.27%, in line with market forecasts.
The deceleration in inflation indicates easing pricing pressures across a broad range of goods and services, offering some relief to policymakers as they navigate a shifting economic landscape.
Core inflation stays above target
Core inflation in Mexico remained elevated in July, reinforcing concerns about underlying price pressures and challenging the central bank’s growing confidence in the recent decline in headline inflation.
According to data from the national statistics agency INEGI, core consumer prices—which exclude volatile items such as food and energy—rose 4.23% year-on-year, marginally lower than June’s 4.24% and in line with market expectations.
The figure remains well above the Bank of Mexico’s target of 3%, with an acceptable range of plus or minus one percentage point.
On a monthly basis, core prices increased 0.31%, also in line with expectations.
While headline inflation has eased considerably, the persistence of high core inflation suggests sustained price pressures in several segments of the economy.
This continued strength in underlying inflation complicates the central bank’s ability to shift toward a more accommodative monetary stance.
Despite the improvement in broad inflation data, the stickiness in core inflation indicates that significant inertia remains in certain sectors, limiting the scope for near-term policy easing by Banxico.
Markets eye Banxico’s next move
The inflation numbers were released just hours before Banxico’s expected interest rate announcement.
Analysts and investors are waiting to see if the central bank will continue its recent monetary easing or adopt a more cautious attitude.
Banxico decreased its benchmark interest rate by 50 basis points to 8% at the June meeting, the fourth straight cut.
However, the decision was not reached unanimously.
Deputy Governor Jonathan Heath voted to maintain the interest rate steady, expressing worries about core inflation and global monetary developments.
Meeting minutes from June revealed that the four board members who supported the cut acknowledged the prospect of taking a more gradual approach to future rate choices.
That guidance has spurred speculation that Banxico will opt for a modest 25-basis-point drop at its August meeting.
A 25-bps drop would bring the benchmark lending rate down to 7.75%.
Given that core inflation remains above target, coupled with elevated uncertainty regarding the global economic outlook, the most probable path for Banxico going forward is a gradual one rather than a bold one.
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