Mexico’s inflation has slowed down more than anticipated, reaching a two-year low just ahead of the Bank of Mexico’s monetary policy announcement.
Data from the National Institute of Statistics and Geography revealed that consumer prices increased by 5.18% in the first half of June compared to the same period last year, falling below economists’ median estimate of 5.30%.
This continued decline in inflation is expected to reassure policymakers and likely lead to the preservation of the current interest rates at 11.25%.
However, inflation still exceeds the central bank’s target of 3% by approximately one percentage point.
Core inflation, which excludes volatile components like fuel and food, also decreased to 6.91% year-on-year.
This measure had been a significant concern as it consistently exceeded the general inflation rate in recent months.
The Bank of Mexico is set to announce its interest rate decision on June 22, and economists hold differing opinions on whether the bank will implement rate cuts later this year or wait until early 2024.
Banxico had recently concluded a series of consecutive rate hikes that raised the benchmark rate by 725 basis points since June 2021.
The borrowing costs presently stand at their highest level since the central bank began targeting inflation in 2008.
The appreciation of the Mexican peso has been beneficial for Banxico, as it reached its strongest level against the dollar in over seven years.
Economists predict that inflation will reach 4.99% by the end of 2023, with the underlying inflation forecast expected to decrease to 5.30%.
Banxico’s benchmark rate is anticipated to end 2023 at 11%, while the economy is projected to grow by 2.20% this year and 1.50% in 2024, according to a recent survey.