Annual headline inflation in Mexico ticked up in March, reaching 4.42% from 4.4% in February, the national statistics agency INEGI reported Tuesday.
However, the rate came in below the 4.5% median estimate of analysts surveyed by Bloomberg, and is 0.06 percentage points below the 4.48% reading for the first half of last month.
Still, inflation last month resumed the upward trend seen between November and January, after the headline rate declined for nine consecutive months between February and October last year. The nine-month-long downward trend came after headline inflation increased to almost 8% in January 2023.
Inflation has now been above the Bank of Mexico’s target of 3%, with tolerance for one percentage point in either direction, for 37 months. Deutsche Bank said that the resilience of domestic demand and a tight labor market are among the factors keeping inflation above the central bank’s target.
Meanwhile, the closely watched core inflation rate, which excludes volatile food and energy prices, declined to 4.55% in March from 4.64% in February. It was the 14th consecutive month that the annual core rate fell. Analysts polled by Bloomberg had predicted a 4.63% rate.
INEGI also reported that month-over-month inflation was 0.29% in March.
March’s inflation data in detail
Inegi’s latest data shows that fruit and vegetable prices were 12.25% higher in March than in the same month a year earlier, while services were 5.37% more expensive on an annual basis.
The cost of processed food, beverages and tobacco rose 5.01% compared to March 2023, energy prices including those for gasoline and electricity increased 3.29% and non-food goods were 2.53% dearer.
The only category in which prices declined compared to 12 months earlier was meat, which was 0.78% cheaper, according to INEGI.
The statistics agency also reported month-over-month price changes for a range of individual products.
Air travel was just over 28% more expensive in March, which included Semana Santa (Holy Week), while lettuce and cabbage prices surged 18.7%.
Among the other products that were significantly more expensive in March than in February were serrano peppers (+13.5%), chicken (+8.45%), limes (+8.45%) and tourism packages (+7.23%).
Among the products that were cheaper were nopales (-26.86%), onions (-19.89%) and tomatoes (-12.46%).
What does the inflation data mean for interest rates?
Bloomberg reported that the fact that headline inflation increased less than expected in March bolstered “economists’ bets that the central bank could deliver another interest cut as soon as May.”
The Bank of Mexico board voted in favor of a 25-basis-point cut last month, reducing the benchmark rate from a record high of 11.25% to 11%.
Board members including Governor Victoria Rodríguez Ceja have indicated that rates will come down slowly, but the latest inflation data “puts a May cut back on the table,” according to Marco Oviedo, a strategist at the Brazil-based financial company XP Investimentos.
The central bank will hold its next monetary policy meeting on May 9.
Oviedo said that the inflation data as well as “the fact that the [Mexican] economy is weakening” and that “the peso is too strong” add impetus to the case for another interest rate cut next month.
However, Felipe Hernández, a Latin America economist for Bloomberg, is not confident that the Bank of Mexico will make another interest rate cut in the near term.
“Persistent high core services inflation and increasing upward pressure on energy prices rein in the relief from slower-than-expected March headline inflation in Mexico. And with less favorable base effects in coming months, there’s limited room for additional interest-rate cuts,” he said.
With reports from El Financiero and El Economista
