Mexico Headline Inflation Slows on Eve of Key Rate Decision

6gyrs48q(dmfjsevant60mzh_media_dl_1.png National statistics agency, cent

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(Bloomberg) — Mexico’s headline inflation ticked down in early June according to a report published on Tuesday as investors expect the central bank to deliver another interest rate cut later this week.

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Inflation in the first half of June slowed to 4.51%, in line with the median estimate from economists in a Bloomberg survey and lower than 4.62% in the prior data print. The core figure, which cuts out volatile items including food and fuel, rose to 4.20% from 4.15% in the previous reading, coming in just above the 4.16% estimate in the survey.

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The central bank, known as Banxico, delivered half-point interest rate reductions in the past three meetings. The monetary authority has suggested it may proceed with the same pace of rate cuts this Thursday. But board members appear to be divided, with Jonathan Heath saying the bank would do well to consider pausing before noting that policymakers would likely still proceed with a 50-basis-point cut.

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In the latest Citi survey, analysts agreed that the bank would deliver a half-point cut. Analysts also predicted that inflation by the end of the year would slow to 3.9% and that Banxico’s year-end interest rate would settle at 7.5%. 

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Bloomberg Economics predicted that the bank could, out of caution, cut the key lending rate by only 25 basis points. Borrowing costs currently stand at 8.5%.

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Central bank Governor Victoria Rodriguez said earlier in June that, when asked about an inflation spike in May, the bank didn’t just take into account any one data point. Banxico targets inflation at 3%, plus or minus one percentage point. 

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Meager economic growth, estimated at 0.1% for this year, has also been considered by the board as a factor that will likely contribute to cooling inflation. Mexico’s government is also gearing up for the start of a review of the North American free trade agreement, along with fellow signatories the US and Canada. Potential changes to the accord could determine much of the future direction of the Mexican economy, Latin America’s second-biggest.

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In recent months, the local economy has been hit by weaker domestic demand and uncertainty caused by US President Donald Trump’s tariff threats. Top officials have argued, nonetheless, that Mexico has not been hit as hard as other countries because of the relatively cordial relations of the two neighbors’ presidents, as well as the significant integration of their economies.

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—With assistance from Rafael Gayol and Curtis Heinzl.

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