Mexican Inflation Slows to 4.66%: Fourth Consecutive Monthly Decline

Mexico’s inflation rate continued its downward trend in early September, offering relief to consumers.

The National Institute of Statistics and Geography (INEGI) reported a significant slowdown in price increases during the first half of the month.

The National Consumer Price Index (INPC) showed a minimal biweekly variation of 0.09%. This resulted in an annual consumer price increase of 4.66%, marking the fourth consecutive month of deceleration.

Market analysts had anticipated a higher inflation rate of 4.73% annually. The actual figure pleasantly surprised economists, falling below their projections.

Alejandro Saldaña, Chief Economist at Ve por Más (Bx+), attributed this slowdown primarily to decreasing agricultural product prices.

Recent months have seen substantial increases in this sector due to adverse weather conditions. Andrés Abadía, Chief Latin American Economist at Pantheon Macroeconomics, expressed optimism about future trends.

He predicted continued inflation reduction in the fourth quarter, citing less demanding base effects and weakening domestic demand.

Inflation Components

Both core and non-core inflation indices showed deceleration in early September. The core inflation rate, which excludes volatile items, stood at 3.95% annually, down from 4.01% in the previous fortnight.

Within core inflation, goods prices rose by 2.94% annually, while services increased by 5.15%. Saldaña noted that core inflation grew at its slowest pace since February 2021.

Non-core inflation registered a 6.73% annual increase. Agricultural products saw a 6.50% price hike, while energy and government-authorized tariffs rose by 6.67%.

Future Outlook

Analysts from Banorte expressed cautious optimism about future inflation trends. They cited reduced drought levels and a strong rainy season as potential factors benefiting crop yields.

However, some challenges persist. Flooding in certain regions could impact crops, and energy prices remain a concern despite recent downward trends.

Implications for Monetary Policy

Given the recent inflation data, analysts anticipate another interest rate cut by the Bank of Mexico (Banxico) in its upcoming monetary policy meeting. Banxico’s current interest rate stands at 10.75%.

Monex strategists predict a 25 basis point cut, citing the need to maintain a stable rate differential between Mexico and the United States. This move would align with the Federal Reserve’s recent monetary easing cycle.

However, Saldaña cautioned that volatility in local markets might limit Banxico’s room for maneuver. The central bank will need to balance inflation control with economic stability in its decision-making process.