Mexico’s Inflation Trends: General Rate Rises, Core Rate Falls in Early October

Mexico’s inflation landscape showed mixed signals in the first half of October 2024. A Reuters survey revealed that general inflation likely increased, while core inflation continued its downward trend.

This development strengthens expectations that the central bank will maintain its course of interest rate cuts. The median forecast from ten analysts projected a general inflation rate of 4.67% for the first two weeks of October.

This marks an uptick from the 4.50% recorded in the previous fortnight, which had been the lowest level since March. Analysts attribute this rise primarily to seasonal increases in electricity rates.

Despite the overall increase, the closely watched core inflation index is expected to drop to 3.84%. This would be its lowest point since January 2021.

The core index excludes highly volatile prices, providing a clearer picture of underlying inflationary pressures. For the first half of October, general prices are estimated to have risen by 0.42% compared to the previous two-week period.

The core index is projected to increase by a more modest 0.20%. These figures suggest a nuanced inflation environment that policymakers must navigate carefully.

Last month, Mexico’s central bank reduced its benchmark interest rate by 25 basis points to 10.50%. This marked the third monetary policy easing this year.

Minutes from the September meeting indicate that the board anticipates a gradual slowdown in inflation, potentially allowing for further rate adjustments.

Bank of Mexico’s Monetary Policy Outlook

The Bank of Mexico has two more monetary policy meetings scheduled before year-end: November 14 and December 19.

Market expectations, based on the bank’s latest survey of private sector economists, suggest the rate will end in 2024 at 10%. Forecasts project a further decrease to 8% by the end of the following year.

Mexico’s National Institute of Statistics and Geography (INEGI) is set to release official inflation data for the first half of October on Thursday. This report will provide crucial insights into the country’s economic health and guide future policy decisions.

The National Consumer Price Index (INPC) serves as the primary tool for measuring price variations in a representative basket of goods and services.

It reflects the consumption patterns of Mexican households and is essential for evaluating inflation trends. While the central bank remains cautious, it acknowledges that inflation risks still lean toward the upside.

However, it has signaled that interest rate adjustments will be gradual. These changes will occur as macroeconomic conditions permit, balancing the need to control inflation with supporting economic growth.

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