Mexico’s inflation rate decelerated more than anticipated in November, increasing the likelihood of a fourth consecutive interest rate reduction at the central bank’s upcoming meeting.
Table Content:
Consumer prices rose 4.55% year-over-year, according to official data released Monday. This figure falls below the 4.6% median estimate from economists surveyed by Bloomberg and the 4.76% recorded in October. Month-over-month inflation registered at 0.44%.
Core Inflation Eases, Supporting Banxico’s Policy Shift
Core inflation, which excludes volatile food and fuel prices and serves as a key indicator for the central bank (Banxico), dipped to 3.58% year-over-year, narrowly missing the 3.6% median estimate. Banxico aims to maintain inflation at 3%, with a tolerance band of ±1 percentage point. The central bank’s next rate decision is scheduled for December 19th.
While persistent headline inflation has posed challenges for Banxico, policymakers have prioritized the consistent downward trajectory of core inflation. Furthermore, Governor Victoria Rodriguez and fellow board members have voiced concerns regarding the recent economic slowdown in Mexico.
Bloomberg Economics anticipates that slowing inflation, driven by abating supply shocks and weaker domestic demand, will allow for further interest rate cuts. However, uncertainties surrounding US monetary policy may limit the pace of easing.
Energy Prices Rise, While Black Friday Discounts Impact Goods
Energy costs surged 4.04% month-over-month in November. Conversely, goods prices declined 0.27%, largely attributed to discounts offered during the “Black Friday” shopping period, as reported by the national statistics institute. Food and beverage prices saw a 0.24% increase, with fruits and vegetables rising 0.71%.
Pantheon Macroeconomics’ chief Latin America economist, Andres Abadia, attributes the easing core inflation to weaker domestic demand. He projects further deceleration in the coming months, influenced by moderate economic activity, declining oil prices, and tight financial conditions.
Anticipation Builds for Another Rate Cut
In November, Banxico unanimously decided on a quarter-point rate cut, lowering the key interest rate to 10.25%. The central bank indicated its openness to more substantial reductions as core inflation continues to subside. A Citi survey conducted in early December reveals that analysts predict another 25 basis point cut in the upcoming meeting.
Banxico’s restrictive monetary policy is significantly impacting the economy, which is projected to experience its third consecutive year of slow growth in 2024, with further deceleration expected in 2025. The central bank’s growth forecast stands at 1.8% for 2024 and 1.2% for 2025.
Conclusion: Rate Cut Likely as Inflation Cools
The latest inflation data reinforces the expectation of another interest rate cut by Banxico in its December meeting. While challenges remain, the cooling inflation trend, coupled with concerns about economic growth, provides room for further monetary easing. The market will closely monitor Banxico’s decision and forward guidance for insights into the future trajectory of monetary policy in Mexico.
