The National Institute of Statistics and Geography (Inegi) published data on Friday showing that inflation slowed more than expected, while economic growth exceeded forecasts, opening the door for the country’s central bank to further reduce rates. of interest next month.
The Bank of Mexico (Banxico) reduced its key rate by 25 basis points to 10.25% last week, marking its third consecutive cut in a unanimous decision by its five-member governing board.
In an interview with Reuters on Monday, Banxico’s president said the bank will likely continue cutting its key rate as long as inflation remains on its downward trend.
Annual inflation in Latin America’s second-largest economy reached 4.56% in early November, down from 4.69% the previous month, after a slight rebound in the previous two fortnightly periods. Economists polled by Reuters expected a flat figure.
The figure is still well above the bank’s target of 3%, by a margin of ±1 percentage point.
Read: Year-on-year inflation in Mexico slows more than expected in the first half of November
The underlying consumer price index, considered a better indicator of price trends when excluding volatile energy and food prices, was below expectations at 3.58% year-over-year.
Kimberley Sperrfechter, emerging markets economist at Capital Economics, highlighted in a statement the importance of the slowdown in core inflation, with falls in goods and services.
“Inflation in services fell below 5% for the first time in more than two years, which is positive for Banxico,” he noted.
“While services inflation remains high, it shows signs of cooling, supporting the possibility of further rate cuts if the peso stabilizes,” said Alberto Ramos of Goldman Sachs.
He added that inflation in core goods, especially excluding food, remains low and there are no signs of a significant pass-through to a weaker peso.
Solid data, uncertain future
Mexico’s economy grew 1.1% in the third quarter compared to the previous period, slightly exceeding the 1.0% expected by economists, driven mainly by the primary sector – which includes agriculture, fishing and mining – with an expansion of 4.9% .
“Our economic growth will exceed expectations,” Mexico’s Minister of Economy, Marcelo Ebrard, published in X after the publication of the GDP data.
On an annual basis, the economy grew 1.6% compared to a year earlier, slightly above the 1.5% forecast by economists, but slower than the 2.2% in the previous quarter.
Read: Banxico anticipates more rate cuts due to progress in reducing inflation
Recent economic data has been affected by a sharp drop in the Mexican peso, which has lost about 19% since the June elections.
Despite a strong GDP performance in the third quarter, Ramos warned that “going forward, real activity will likely face headwinds from post-election political uncertainty, a negative fiscal impulse, low business confidence and weak external demand.” moderate.”
A series of post-election reforms have shaken investor confidence in the country’s legal system, and uncertainty about the future of the critical trade relationship between Mexico and the United States, following Donald Trump’s election victory, has further fueled more worries.
With information from Reuters
Do you like to get informed through Google News? Follow our Showcase to have the best stories
