Mexican consumer prices ‘slowly receding’ as core inflation cools

12:25 pm Monday, January 09th, 2023

MEXICO CITY (Reuters) -Mexico’s top-line consumer prices data ended last year slightly below analyst expectations, while so-called core inflation finally appeared to have peaked, data from the national statistics agency showed on Monday.

Annual headline inflation in December reached 7.82%, up slightly from 7.80% in November, but still below the record 8.70% reached in August and September.

Meanwhile the core index, which strips out some volatile food and energy prices, hit 8.35% on an annual basis in December, dropping from November’s 8.51% in the first slowdown in over 20 months.

Economists polled by Reuters expected annual headline inflation to come in at 7.86% and core inflation at 8.36%.

Inflation has blown past the Bank of Mexico’s target rate of 3%, plus or minus one percentage point, prompting it to increase its key lending rate by 650 basis points to reach 10.50% during the current hiking cycle, which began in June 2021.

The central bank is considering another interest rate hike at its next monetary policy meeting scheduled for Feb. 9, according to the minutes of its last board meeting.

Jason Tuvey, Senior Emerging Markets Economist at Capital Economists, said that the core index data showed progress, and expected the Bank of Mexico to slow the pace of rate hikes at the next meeting.

“Policymakers at the central bank will have taken comfort from the fact that core price pressures are finally easing,” he said.

“We think that (the next rate hike) will be a smaller 25bp increase (to 10.75%), and that this will mark the end of the tightening cycle.”

However, Mexican central bank board member Jonathan Heath flagged that the inflation outlook was “still extremely difficult” in a tweet, with food price inflation proving particularly worrying at 14.1% annually.

On a monthly basis, core inflation was 0.65% in December.

Meanwhile, monthly headline inflation was 0.38% in the period, according to non-seasonally adjusted figures..

Analysts at Banorte bank welcomed the movement in consumer prices, revising their year-end 2023 inflation forecast to 4.8% from 5.4%.

Elsewhere, Citi analysts maintained their prior December 2023 forecast of 4.8%

“Today’s figures support our view that inflationary pressures are slowly receding, albeit remain elevated,” wrote Ivan Arias, an analyst at Citi.

(Reporting by Isabel Woodford; Editing by Kevin Liffey and Alistair Bell)