(Bloomberg) -- Mexico’s annual inflation eased last month to the lowest level since February 2021, keeping in play a fifth straight interest rate cut at the central bank’s next policy meeting.
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Official data released Thursday showed consumer prices rose 4.21% in December from the year prior, roughly in line with the 4.22% median estimate of economists surveyed by Bloomberg. They remained above the bank’s 3% target.
Core inflation, which excludes volatile items like food and fuel, accelerated to 3.65%, near the the 3.64% median estimate. Banco de Mexico members cited cooling core readings as one of the reasons for December’s quarter-point rate cut.
The central bank, which is known as Banxico and holds its next rate-setting meeting Feb. 6, has indicated more borrowing cost cuts are on the way and that “larger downward adjustments could be considered.” Analysts in the latest Citi survey published this week forecast that gross domestic product will expand by a mere 1% in 2025, which could contribute to the slowdown in inflation.
On the month, Mexico’s consumer prices rose 0.38%. Services costs increased 0.61% during the period, representing a top inflation driver, while on the other hand fruit and vegetables fell 2.82%.
What Bloomberg Economics Says
“Mexican inflation data for December added evidence that upward pressure on prices from supply shocks, increasing costs and excess domestic demand is fading. We expect the inflation rate to continue slowly falling this year, though accumulated peso depreciation and persistent inflation expectations may limit the decline.”
— Felipe Hernandez, Latin America economist
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If Donald Trump follows through with his plan to impose a 25% tariff on imports from Mexico, Banxico Governor Victoria Rodriguez has said such a measure could weigh on activity and put downward pressure on costs. At the same time, she said any resulting exchange rate swings could stoke price increases.
“Given heightened uncertainty around US President-elect Trump’s policies and with core services inflation still uncomfortably strong, we think it’s more likely that Banxico will deliver another 25bp interest rate cut, to 9.75%, at next month’s meeting,” Kimberley Sperrfechter, an Emerging Markets Economist at Capital Economics, wrote in a note.