Mexico’s Inflation Rate Drops in January

MEXICO CITY (Reuters) – Mexico’s annual inflation rate slowed slightly more than expected in January, according to official data released on Friday. This follows the central bank’s accelerated interest rate cuts and a signal of more monetary easing ahead.

In Latin America’s second-largest economy, the headline annual inflation rate reached 3.59% in January, down from 4.21% the previous month and just below the 3.61% forecast by economists polled by Reuters.

Recent improvements in the inflation environment, with consumer price increases now within the Bank of Mexico’s target range of 2% to 4%, along with an economic contraction reported late last year, have allowed policymakers to reduce borrowing costs.

The central bank, known as Banxico, announced a 50-basis-point cut to its benchmark interest rate, lowering it to 9.5%, effectively doubling the pace of its easing cycle. They indicated the possibility of future similar cuts as inflation cools.

“This is a good inflation report, supporting Banxico’s dovish tilt yesterday,” stated Andres Abadia, chief Latin America economist at Pantheon Macroeconomics. He noted that inflation in Mexico has recently hit cyclical lows, largely due to subdued core pressures, allowing Banxico some space to start normalizing monetary policy. However, the Mexican peso sell-off in Q4 remains a near-term risk to price stability.

Mexican President Claudia Sheinbaum praised January’s inflation figures and the central bank’s rate decision during her morning press conference. She described the “very important” rate cut as a sign of the strength of the Mexican economy, encouraging investment in the country.

In January, consumer prices increased by 0.29%, a slowdown from December’s 0.38% rise. Economists in a Reuters poll had expected a 0.31% increase. The core index, which excludes some volatile food and energy prices, rose 0.41% monthly and 3.66% annually, compared to market forecasts of 0.45% and 3.70% respectively.