UPDATE 2 – Mexico's inflation falls slightly more than forecast

(Adds analyst comments)

By Natalia Siniawski

MEXICO CITY, Feb 23 (Reuters) – Mexico's headline inflation slowed more than analysts had forecast in early February, data from the national statistics agency showed on Thursday.

Headline annual inflation fell to 7.76% in the first half from 7.94% the previous month, while economists polled by Reuters had forecast 7.80%. Meanwhile, the core index, which excludes some volatile food and energy prices, reached 8.38% on an annual basis, with a surprise of -0.04%.

However, annual inflation is still above the Bank of Mexico's target rate of 3%, give or take one percentage point.

Consumer prices rose 0.30% in the first half of February, the national statistics agency said on Thursday, while the closely watched core price index rose 0.35% in the period.

The rise in services inflation “will continue to worry central bank policymakers,” Capital Economics analyst Jason Turvey said in a note.

It could take another three to six months for the core index to fall again, analysts at Pantheon Macroeconomics say, due to “tight financial conditions, weakening domestic demand, the recovery of the (Mexican peso) and falling commodity prices.”

Banxico, as the central bank is known, has raised its key interest rate by 700 basis points since the start of its rate hike cycle in June 2021. This month it raised the interest rate by a larger-than-expected 50 basis points, to 11%. .

Central Bank Deputy Governor Jonathan Heath told Reuters last week that the bank's monetary tightening cycle was nearing its end and nominal interest rates could peak between 11.25% and 11.75%. At this point, interest rates would be held stable so that they could take effect. (Reporting by Natalia Siniawski; Editing by Steven Grattan and Will Dunham)

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