(Bloomberg) — Mexico’s annual inflation slowed to the lowest level since early 2021 in December, 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% compared to the year prior, roughly in line with the 4.22% median estimate of economists surveyed by Bloomberg. Nevertheless, it remained above the bank’s 3% target.
Core inflation, which excludes volatile items including 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.” Board member Jonathan Heath told Reuters that a 50 basis-point reduction from the current level 10% was possible.
“There was a change to the guidance from what we’ve seen in other parts of the cycle of monetary policy adjustment,” said Janneth Quiroz Zamora, the director of economic analysis at Monex Casa de Bolsa, who is expecting a 50 basis-point cut at the next meeting. “It’s a guide, not a unbreakable promise.”
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 exchange rate swings could stoke price increases, making it unclear what the precise impact would be on inflation.
Still, some analysts have speculated that Trump could be bluffing so as to have more negotiating room with Mexico on issues that form part of his agenda, including immigration, border security, and the flow of illicit drugs to US consumers.
Mexico’s economy is expected to weaken regardless of potential whiplash from US policy. In the latest Citi survey published in January, analysts forecast that GDP would expand by a mere 1% in 2025, which could contribute to the slowdown in inflation.
–With assistance from Rafael Gayol and Robert Jameson.
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