Inflation in Mexico declined in the first half of August after reaching its highest level in more than a year in July, according to official data.

The national statistics agency INEGI reported Thursday that the annual headline inflation rate was 5.16% in the first half of the month, down from 5.57% across July.

It was the second consecutive two-week period that the annual headline rate declined after it fell to 5.52% in the second half of July from 5.61% in the first half of the month.

The 5.16% rate is lower than the 5.33% consensus forecast derived from the latest Citibanamex survey, but still well above the Bank of Mexico’s target of 3%.

Consumer prices fell 0.03% on a fortnight-over-fortnight basis, while the closely watched annual core inflation rate declined to 3.98% from 4.05% across July.

It was the first time in more than three years that the annual core inflation rate went below 4%.

The decline in core inflation — a reading which excludes volatile food and energy prices — continued the trend seen over the past 1 1/2 years.

The Bank of Mexico cited the decline during 18 consecutive months as a major factor in its recent surprise decision to cut its benchmark interest rate by 25 basis points to 10.75%.

A strong majority of more than 30 banks, brokerages and research organizations surveyed by Citibanamex predict that the central bank will make another 25-basis-point cut after its board’s next monetary policy meeting on Sept. 26.

The decline in both headline and core inflation in the first half of August makes an interest rate cut even more likely next month.

Fresh produce inflation eases, but remains high 

Annual inflation for agricultural products — fruit, vegetables and meat — was 10.95% in the first half of August, down from 13.72% across July.

Fruit and vegetable prices rose 15.89% annually, compared to 23.55% in July.

Inflation for meat increased to 6.28% in the first half of August, up from 5.36% across July.

Packaged food, beverages and tobacco were 4.14% more expensive in the first half of the month than a year earlier, while annual inflation for non-food goods was 1.80%.

Annual inflation for services was 5.11%. Within that category, housing costs rose 3.98% and school fees increased 6.14%.

Energy prices, including those for electricity and gasoline, increased 6.74% on a year-over-year basis.

What is the inflation outlook?

The median forecast of the banks, brokerages and research organizations surveyed by Citibanamex is that the annual headline inflation rate will be 4.60% at the end of 2024.

Their consensus forecast is that inflation will continue falling next year to reach 3.86% at the end of 2025.

The Bank of Mexico is currently predicting 4.40% inflation at the end of the year and a 3% headline rate at the end of 2025.

With reports from El Financiero and El Economista