Mexico headline inflation in early January beats expectations, slides beneath 4%

(Reuters) -Mexico’s annual inflation charge slowed to its lowest stage in virtually 4 years within the first half of January, official information confirmed on Thursday, a value stage prone to encourage the central financial institution to maintain reducing borrowing prices.

In Latin America’s second-largest financial system, 12-month headline inflation got here in at 3.69% in early January, statistics company INEGI introduced, its lowest since February 2021 and throughout the central financial institution’s 3% goal, plus or minus one proportion level.

Annual inflation was beneath each the earlier month’s 4.44% and the three.78% forecast by economists polled by Reuters.

Slowing client value progress was pushed by decrease non-processed meals prices, which helped offset a barely higher-than-expected studying within the core index, which some take into account extra dependable because it excludes unstable power and meals costs.

In December, the Mexican central financial institution – often known as Banxico – delivered its fifth interest-rate reduce that yr, taking its key lending charge to 10.00% with a 25-basis-point discount whereas citing progress on inflation.

On the time, the financial institution’s board famous that additional and bigger cuts could possibly be thought of going ahead. However some economists see exterior pressures and an uptick in core costs complicating any push to speed up financial easing.

“With the U.S. Federal Reserve set to pause its reducing cycle and uncertainty round tariffs, we predict it is extra doubtless that Banxico will ship one other 25bp reduce,” mentioned Kimberley Sperrfechter, rising markets economist at Capital Economics.

Mexico is bracing for added value pressures as U.S. President Donald Trump threatens tariffs on its southern neighbor’s exports along with mass deportations.

Core inflation rose 0.28% in early January, whereas the annualized core charge got here in at 3.72%, exceeding market expectations of three.68% and the earlier month’s 3.62%.

Andres Abadia, chief Latin America economist with Pantheon Macroeconomics, careworn considerations over core costs and different elements now going through the central financial institution.

“Deteriorating exterior and home political situations, which have pressured the Mexican peso, might constrain policymakers’ flexibility if these developments persist,” he mentioned.

Banxico is scheduled to announce its subsequent charge choice on Feb. 6.