MEXICO CITY (Reuters) – Mexican annual inflation slowed more than expected in the first half of October, remaining far above the central bank’s target rate, while the closely watched core index climbed higher, data from national statistics agency INEGI showed on Monday.

Headline annual inflation in Latin America’s second-largest economy inched down to 8.53% from 8.64% in the second half of September, also undershooting the consensus forecast of a Reuters poll for a rate of 8.63%.

Compared with the previous two-week period, Mexican consumer prices rose by 0.44% in early October, the data showed. The Reuters poll had forecast an increase of 0.53%.

“With the measures we’re taking, we are seeing a slowdown in inflation,” President Andres Manuel Lopez Obrador told a news conference, pointing to a pact with retailers to contain prices of key food staples. “A little, but already it’s not going up.”

The core price index, which strips out some volatile food and energy prices, climbed 0.42% in early October, slightly above market expectations for 0.35%. Annual core inflation was 8.39%, above forecasts for 8.31%.

One Bank of Mexico board member, Jonathan Heath, said on Twitter core inflation “continues to be the greatest concern,” noting that the drop in headline inflation is wholly due to a decline in the non-core index, which in turn is explained by falling prices for liquefied petroleum gas.

“The drop in price for a single good and on a single occasion does not begin to solve the big problem of inflation, which is a generalized and sustained increase in prices,” said Heath.

Mexico’s central bank has been raising interest rates since June 2021 in a bid to tamp down inflation, which has blown past the bank’s target of 3% plus or minus 1 percentage point.

The benchmark rate stands at a record 9.25%, and minutes from the Bank of Mexico’s September monetary policy meeting showed the board eyeing future hikes amid inflation risks.

Jason Tuvey, Capital Economics’ senior emerging markets economist, expects a 75 basis-point hike in November as the U.S. Federal Reserve remains hawkish.

“But these latest figures suggest that the end of the tightening cycle is not too far away,” Tuvey added.

Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, said base effects, weakening domestic demand and the lagged effect of tighter financial conditions are expected to continue to push inflation down in Mexico.

“Underlying pressures are finally stabilising, and we still believe inflation will continue to fall consistently over the next few months.”

(Reporting by Mexico City newsroom and Gabriel Araujo; Editing by Louise Heavens, Kirsten Donovan)

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