Mexico’s inflation surged more than anticipated in early October, posing potential challenges to the central bank’s plans for further interest rate reductions in the coming months.
According to official data released on Thursday, consumer prices in the first two weeks of October climbed by 4.69% compared to the same period last year. This increase surpassed the 4.66% median forecast by analysts surveyed by Bloomberg, suggesting a stronger-than-expected rise in inflationary pressures.
The core inflation rate, which excludes more volatile components like food and energy, saw a slight decrease, registering at 3.87%—marginally lower than the prior reading of 3.88%. However, it still came in higher than analysts’ expectations, who had predicted a 3.82% rise. The Bank of Mexico (Banxico), tasked with controlling inflation, aims to keep it within a target range of 3%, with a tolerance of one percentage point above or below.
In late September, Banxico opted to reduce its key interest rate by 0.25 percentage points to 10.5%, reflecting confidence in a cooling inflation environment. The decision followed a series of positive economic signals, including a slowdown in inflation both domestically and in the US. The bank had indicated that further rate cuts were likely at its next meeting on November 14, citing economic deceleration as a factor.
However, the recent inflation data might complicate those plans. The decision to lower rates in September was not unanimous, with Deputy Governor Jonathan Heath dissenting. Heath advocated for maintaining the rate at 10.75%, emphasizing that Mexico’s elevated services prices warranted a more cautious approach.
Mexico’s economic performance has been lacklustre, prompting analysts to anticipate additional monetary easing. The country’s central bank recently downgraded its growth forecast for 2024 from 2.4% to 1.5% and similarly revised its 2025 projection from 1.5% to 1.2%. Economists, in turn, have scaled back their inflation and growth expectations, with predictions for 2024 inflation reduced to 4.40% and GDP growth expected to match Banxico’s 1.5% forecast.
Despite this, Mexico’s battle with inflation is far from over, as the figures indicate persistent price pressures. Whether Banxico will continue with its plan to reduce rates next month will likely depend on upcoming economic data and inflation trends, as reported by Bloomberg.
