Mexico’s Inflation Trends

By Natalia Siniawski

(Reuters) – Mexico’s headline inflation rate rose again in July, reaching a level not seen in over a year. The core index showed signs of moderation, according to data released by statistics agency INEGI on Thursday.

Headline Inflation

Annual headline inflation in Latin America’s second-largest economy hit 5.57% in July, in line with expectations from a Reuters poll. However, it surpassed June’s figure of 4.98%, marking the highest level since May of the previous year.

This inflation surge in July complicates the Mexican central bank’s potential efforts to reduce its benchmark interest rate. In late June, the bank chose to hold interest rates steady after a rate cut in March, marking the first reduction since mid-2021.

The bank indicated that slowing inflation could provide a pathway for reductions in the future. The rise in headline inflation, compounded by weakness in the peso, suggests that the bank’s upcoming interest rate decision would be a close call between a cut and maintaining the current rate, according to Kimberley Sperrfechter, an emerging markets economist at Capital Economists.

Core Inflation

Meanwhile, the closely monitored core index, which excludes volatile energy and food prices, continued its annual decline, hitting 4.05% over the 12 months through July. This is down from 4.13% in June.

The results indicate that temporary factors are currently driving headline inflation pressures, while softening private demand is leading to lower core inflation, as pointed out by Andres Abadia, chief Latin America economist at Pantheon Macroeconomics.

Abadia mentioned, “The near-term outlook has deteriorated due to global turmoil. However, the delayed effects of tight financial conditions and increased policy uncertainty will help keep inflation relatively moderate in the very near term.”