Mexico’s Annual Inflation Rate Ticks Up, Backing Cautious Banxico Stance on Rates

(Bloomberg) -- Mexico’s annual inflation sped up past forecasts earlier this month, corroborating the central bank’s cautious stance after policymakers delivered their first interest rate cut since 2021 in a split vote.

Most Read from Bloomberg

Consumer prices rose 4.48% in the first half of March versus a year prior, up from 4.35% in late February, the national statistics institute reported Friday. The reading was above the 4.44% median estimate from analysts in a Bloomberg survey.

Core inflation, which excludes volatile items such as fuel and food, sped up to 4.69% from a year ago, above economists’ 4.63% forecast.

Mexico’s central bank, known as Banxico, joined Latin American peers Thursday by cutting rates to 11%, though in a split decision. In their statement, policymakers led by Victoria Rodriguez said restrictive monetary will still be needed. Price pressures are expected to wane more gradually in coming months, and analysts see inflation above the 3% target through 2025.

Read more: Banxico’s Governor Says Future Cuts to Be Evaluated One-By-One

Central bankers were likely aware of the print prior to yesterday’s decision, said Marco Oviedo, a strategist at XP Investimentos. Still, services costs could pose a challenge to policymakers when deciding on rates going forward. “If this trend continues, they could pause in May, but we need to see more data.”

Airfares surged almost 36%, marking one of the biggest drivers of Friday’s reading as prices picked up ahead of the Easter holiday. Staple foods like chicken also rose, while fruit and vegetables increased 11.74% year-on-year and services gained 5.57% in 12 months.

Seasonal factors within the tourism sector were stronger than expected, and food costs remain pressured as severe weather from El Nino fades. “There were some positive surprises but not enough to compensate the bad news,” said Jessica Roldan, an economist at Casa de Bolsa Finamex, adding that she bets on a 9.75% end-of-cycle interest rate.

In a separate release on Friday, Mexico’s economic activity unexpectedly posted its fourth straight monthly decline in January, falling 0.63% compared to analyst expectations of a 0.2% gain. The data support the central bank’s rate cut on Thursday and increase chances of more reductions this year, according to Felipe Hernandez, a Latin America economist at Bloomberg Economics.

“The results point to falling consumption despite rising employment, higher salaries and strong consumer confidence,” he wrote in a report.

--With assistance from Rafael Gayol and Maya Averbuch.

(Updates with activity data and economist comment in final two paragraphs)

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.