MEXICO CITY (Reuters) – Mexico’s annual inflation rate slowed slightly more than expected in January, official data showed on Friday, after the central bank accelerated the pace of its interest rate cuts and signaled more monetary easing ahead.
In Latin America’s second-largest economy, the headline annual inflation rate hit 3.59% in January, statistics agency INEGI said, down from 4.21% the previous month and just below the 3.61% expected by economists polled by Reuters.
The improving inflation environment, with consumer price increases now within the Bank of Mexico’s 2% to 4% target range, and an economic contraction reported late last year, have allowed policymakers to reduce borrowing costs.
The central bank, known as Banxico, announced on Thursday a 50-basis-point cut to its benchmark interest rate to 9.5%, doubling the pace of its easing cycle and saying it could cut by a similar magnitude in the future as inflation cools.
“This is a good inflation report, supporting Banxico’s dovish tilt yesterday,” Pantheon Macroeconomics’ chief Latin America economist Andres Abadia said.
“Inflation in Mexico hit cyclical lows recently, thanks in large part to subdued core pressures, giving Banxico some space to start normalizing monetary policy. But the Mexican peso selloff in Q4 remains a near-term risk to price stability.”
Mexican President Claudia Sheinbaum on Friday applauded January’s “very good” inflation figures, as well as the central bank’s rate decision a day before.
The “very important” rate cut “speaks to the strength of the Mexican economy but also encourages investment in our country,” the president said in her morning press conference.
In January alone, according to INEGI, consumer prices were up 0.29%, slowing from the 0.38% rise seen in December. Economists in a Reuters poll expected a 0.31% increase.
The core index, which strips out some volatile food and energy prices, rose 0.41% during the month and 3.66% on an annual basis. Market forecasts were at 0.45% and 3.70%, respectively.
(Reporting by Gabriel Araujo in Sao Paulo; Additional reporting by Raul Cortes Fernandez in Mexico City; Editing by Hugh Lawson and Rod Nickel)
