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Mexico’s Inflation Jumps and Clouds Banxico’s Rate Cut Path - BLOOMBERG

JULY 10, 2024


(National statistics agency, cent)

(Bloomberg) -- Mexico’s inflation accelerated more than expected in June, complicating central bank’s efforts to cut interest rates that remain near an all-time high.

Consumer prices rose 4.98% from a year earlier, above the 4.87% median estimate of analysts in a Bloomberg survey. Core inflation, a metric that strips out volatile components and that the Mexican central bank watches closely, slowed to 4.13%, slightly below the 4.14% median estimate.

The central bank, known as Banxico, in June maintained borrowing costs at 11%, in a 4-1 split vote that had the dissenting member voting for a small cut. Governor Victoria Rodriguez has said recent progress in the disinflation process would allow it to discuss lowering rates in the future. But in a post on X on Tuesday, Deputy Governor Jonathan Heath called the June inflation data “very concerning.” 

Recent months of cooling core inflation have led some analysts to predict that central bankers will deliver a quarter-point cut when they meet on Aug. 8. Others are more skeptical now that Banixco is dealing with a sudden plunge in the value of the peso following last month’s election, which handed the ruling coalition enough seats in Congress to change the constitution and worry investors.

“The worry now shouldn’t be general inflation. The fact that core inflation has been slowing, even if at a lower rate, should be enough of a positive sign for Banco de Mexico,” said Joan Enric Domene Camacho, Latin America economist at Oxford Economics. The bank “should be focused on services inflation.”

Drought has also contributed to a spike in the prices of food products and was one of the main pressures of June’s headline print, while services remain sticky. Andres Abadia, an economist at Pantheon Macroeconomics, said that the continued downtrend in core inflation should allow for Banxico to lower borrowing costs in upcoming meetings, but cautioned that timing was far from certain.

“We recognize that adverse external factors and the effects of poor weather on crucial crops may potentially delay action,” Abadia wrote in a research note.

The Mexican central bank, which targets inflation at 3%, usually also takes into account the actions of the US Federal Reserve, though board members have insisted that they do not base their decision on their US counterparts. Federal Reserve Chair Jerome Powell indicated inflation has been getting back on a downward path, though he said in early July officials needed more evidence before lowering interest rates.


(Update with central banker commer in third paragraph.)


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