In the initial half of April, Mexico experienced a higher-than-anticipated inflation rate, potentially reinforcing the decision to uphold interest rates at the central bank’s May monetary policy meeting.
Citing official data released on Wednesday, Bloomberg reported that consumer prices surged by 4.63 per cent year-on-year (YoY), exceeding all projections from a Bloomberg survey, which had a median forecast of 4.51 per cent. Meanwhile, core inflation, which excludes volatile items like food and fuel, moderated to 4.39 per cent.
Persistent inflationary pressures have complicated analysts’ efforts to discern whether the interest rate cut initiated by policymakers in March heralds the beginning of a sustained easing cycle. Despite robust employment figures and significant government expenditure preceding the June presidential elections, which are bolstering economic growth, there are apprehensions that the Mexican economy might be overheating beyond the central bank’s comfort level.
Commonly referred to as Banxico, the central bank reduced the key rate by a quarter-point last month to 11 per cent, emphasizing a cautious, gradual approach to further cuts.
Following Wednesday’s data release, many economists anticipate a cautious stance from Banxico. They suggest that a rate cut in May is unlikely and could be deferred for the foreseeable future.
Kimberley Sperrfechter, an emerging markets economist at Capital Economics, remarked in a research note, “The latest developments cast doubt on whether a rate cut will be on the table at the bank’s subsequent meeting in June.”
Service price increases, closely monitored by central bankers, accelerated in the first half of April, contributing to inflation remaining significantly above Banxico’s 3 per cent target.
The notable rise in prices was predominantly driven by a 1.68 per cent increase in the cost of agricultural products compared to the previous two-week period, with essential items such as tomatoes witnessing substantial jumps, according to the statistics agency.
These notable increases in non-core items provide Banxico with additional rationale for maintaining borrowing costs in May, as noted by Marco Oviedo, a strategist at XP Investimentos, who remarked, “It’s just another reason to hold off for now.”
Moreover, economists highlight that the growing likelihood of the Federal Reserve delaying interest rate cuts in the US further complicates matters for emerging markets seeking to implement their own reductions.
