Annual headline and core inflation rates dropped in the first half of February compared to the previous month, but still remain well above the central bank’s target range.

The national statistics agency INEGI reported Thursday that annual headline inflation was 7.76% in the first half of the month, down from rates of 7.88% in the previous two-week period and 7.91% in the month of January as a whole. It was the lowest headline figure since the second half of November when the rate was 7.46%.

The annual core inflation rate, which strips out some volatile food and energy prices, was 8.38% in the first half of February, down from 8.45% in the entire month of January.

The headline and core inflation rates remain at a level well above the Bank of México’s target of 3% with tolerance of one percentage point in both directions. However, both indicators fell more than analysts anticipated in the first half of February.

“Inflation in Mexico in the first half of February … [was] better than expected,” tweeted economist Marco Oviedo, former head of Latin America economics research at Barclays.

However, “it will be a long road” to bring inflation down to the target level, he added.

INEGI data shows that processed food, beverages and tobacco were 13.86% more expensive in the first half of February compared to a year earlier, while prices for non-food goods were up 7.34%. Meat prices rose 10.27% in the 12-month period while those for fruit and vegetables increased 9%.

The cost of services increased 5.58% while energy prices, including those for fuel and electricity rose 2.95%.

The publication of the latest data comes two weeks after the central bank lifted its benchmark interest rate by 50 basis points to a new record high of 11%. It has lifted its key rate by 700 basis points since the current tightening cycle began in June 2021.

Oviedo predicted that the bank will lift its benchmark rate by an additional 25 basis points at its next monetary policy meeting on March 30.

“In summary, inflation in Mexico has practically remained above 7% for a year and since then, Banxico has lifted its reference rate by 5.0 percentage points,” he tweeted using the central bank’s abbreviated name.

“It’s probably now close to ending the [tightening] cycle, maybe up to 100 basis points more, but it is far from cutting [rates],” Oviedo said.

Banxico said earlier this month that it expects inflation to converge to its target in the final quarter of 2024, but noted that the projection is subject to a range of risks including “pressures on energy prices or on agricultural and livestock product prices” and “exchange rate depreciation.”

The bank also said that its next upward adjustment to its interest rate “could be of lower magnitude” compared to the 50-basis-point hike it announced Feb. 9.

With reports from El Economista and El Financiero