Mexico’s annual inflation rate decreased to 4.32% in June from 4.42% in May, marking the first monthly decline since January, according to data released by Mexico’s national statistics agency, INEGI. This marks a positive trend in headline inflation, though core inflation—which excludes volatile food and energy prices—accelerated to 4.32% from 4.06% in May, hitting its highest level since April 2024.
The conflicting signals from these inflation measures are creating challenges for Mexico’s central bank (Banxico) regarding its interest rate policy. While overall inflation is declining, the persistent core inflation may prompt caution among monetary policymakers.
Main Contributors to Inflation
- Housing
- Food
- Carrot
- Beef
On the contrary, prices for papaya, chile serrano, chile poblano, guava, and zucchini saw the largest decreases.
Economic analysts surveyed by Reuters expect July’s inflation rate to fall below 4%, moving closer to the upper limit of Banxico’s target range of 3%, plus or minus 1 percentage point. This forecast has led to speculation that the central bank may slow its pace of interest rate cuts.
Banxico has reduced its benchmark rate by 50 basis points in each of the past four months, bringing it to its lowest level in nearly three years. However, the June decision was not unanimous, with board member Jonathan Heath advocating for a more cautious approach until inflation shows a more sustained downward trend.
Future Rate Cuts
Investment bank Actinver projects two more rate cuts this year, likely in August and September, but at a reduced pace of 25 basis points each. Notes from Banxico’s June 26 meeting suggest the bank is moving away from the larger 50-basis-point cuts, indicating a more measured approach going forward.
For more details, you can read the full article at Mexico News Daily.
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