Mexico’s annual inflation declines in December, supporting further interest rate cuts Reuters
Written by Natalia Siniawski
(Reuters) – Mexico’s headline inflation rate eased more than expected in December, prompting bets that the central bank will continue to cut its benchmark interest rate despite a rise in the core consumer price index.
Annual headline inflation in Latin America’s second-largest economy reached 4.21% last month, INEGI data showed, below the 4.28% expected by economists in a Reuters poll and lower than November’s figure of 4.55%.
“Good news,” central banker Jonathan Heath wrote in a post on X, “as this is the first time (inflation) is below the 4.26% recorded in October 2023.”
Meanwhile, the closely watched consumer price index, which excludes volatile energy and food prices, accelerated to 3.65% in the 12 months to December from 3.58% the previous month. Economists expected it to amount to 3.62 percent.
Andres Abadia, chief economist for Latin America at Pantheon Macroeconomics, said the uptick in core inflation appeared to be temporary and pointed to a drop in non-core inflation, helped by falling food prices due to favorable weather, as a key factor driving the overall decline.
Last month, Mexico’s central bank cut its benchmark interest rate by 25 basis points, the fifth in 2024, bringing the rate down to 10.00%.
Minutes of the meeting, released later Thursday, showed that most board members were open to considering larger rate cuts in the future.
But inflation data from December could dampen those prospects, analysts warn.
“The report supports another rate cut of 25 basis points in February, but warns that volatile core services inflation and external risks, such as US policy uncertainty, could lead Banxico to remain cautious in accelerating rate cuts,” she said. Kimberley Sperrfechter, Emerging Markets Economist. on Capital Economy.
