MEXICO CITY (Reuters) – Mexico’s core consumer prices slowed by more than expected in the year to February, data from statistics agency INEGI showed on Thursday, providing some relief as Latin America’s second-largest economy grapples with high inflation and interest rates.
Overall, prices remain elevated in the country, the data showed, but the latest shift might be welcomed by the Bank of Mexico as its board members have been showing concern with the core inflation’s upward trend, seen as more persistent than expected despite aggressive monetary tightening.
Considered a better gauge of the price trajectory than the headline one as it strips out some volatile food and energy prices, Mexico’s closely watched core inflation index rose 8.29% in the year through February, INEGI said.
That represents a deceleration from the previous month, when it had stood at 8.45%, and comes below both the median forecast of 8.35% from economists polled by Reuters and the minimum expectation in the poll of 8.3%.
“Inflation is finally coming back down to earth,” said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics.
“Core inflation is still sticky, despite the recent downshift… but we still believe it will fall to about 7% in the second quarter and 5.0% by year-end”.
In February, according to INEGI, core prices rose 0.61% from January, versus an expected 0.66% increase.
The headline index, meanwhile, was up 0.56% month-on-month, also below the 0.61% forecast, taking the annual rate of price increases to 7.62%. Economists expected 7.68%.
Inflation in the country remains well above the target of 3% plus or minus one percentage point, but the latest figures should back the central bank’s stance that interest rates could be raised more moderately at its next meeting, after a 50 basis-point hike to 11.00% last month.
Jason Tuvey, deputy chief emerging markets economist at Capital Economics, said he expects two more hikes of 25 basis points before the current tightening cycle ends.
“When policymakers do turn to loosening, it is likely to come later and proceed more gradually than most currently anticipate,” he wrote in a note to clients, noting that a pick-up in services inflation should still worry Banxico.
(Reporting by Gabriel Araujo in Sao Paulo; Editing by Steven Grattan)
