Annual inflation slowed in June, although core prices remained stubbornly high, prompting speculation that the central bank might slow the pace of interest rate cuts.

According to data from Mexico’s national statistics agency INEGI, consumer prices rose 4.32% in June, down from 4.42% in May, representing the first monthly decline in the annual inflation rate since January. 

Month-over-month inflation in June itself was .28%, down from .38% in June of 2024.

However, annual core inflation accelerated to 4.24% in June from 4.06% in May, its highest level since April of 2024. Core prices are viewed as a better gauge of price trends because highly volatile food and energy prices are stripped out.

The latest core inflation numbers pose a dilemma for the central bank, or Banxico, with regard to borrowing costs for Mexico, according to the news agency Reuters.

“Core inflation remains sticky, with persistent upward pressure from housing, food services and a seasonal jump in airfares, likely keeping some Banxico board members uneasy,” Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, told Reuters.

Housing, food, carrot and beef prices led the rise in inflation, while papaya, chile serrano, chile poblano, guava and zucchini prices fell the most, according to INEGI.

What’s in store for July?

Analysts surveyed by Reuters expect July’s inflation rate to sink below 4%, within range of the upper end of Banxico’s target range of 3%, plus or minus 1 percentage point.

Such an outcome would likely cause the central bank to ease its pace of rate cuts. Banxico has shaved 50 basis points off its benchmark rate each of the past four months. 

“We anticipate that the Mexican central bank could cut its benchmark rate on two more occasions this year. We project that these cuts will occur in August and September, both cuts of 25 basis points,” analysts at the investment bank Actinver said.

Banxico lowered its benchmark rate by 50 basis points last month, to its lowest rate in nearly three years, though the decision was not unanimous. Jonathan Heath, the lone negative vote at last month’s Board of Governors meeting, has urged a more cautious approach until a more sustained downward trajectory in the inflation rate is evident.

Notes from the June 26 meeting suggest the remaining Banxico governors agree with Heath, eliminating references to further 50 basis point cuts. Instead, they said they would continue to assess the situation. 

With reports from El Economista, El Financiero and Reuters