(Bloomberg) -- Mexico’s annual inflation accelerated roughly in line with economists’ forecasts in early February, holding near the central bank’s estimates and keeping chances of a sixth straight interest rate cut in play.
Official data released Monday showed consumer prices rose 3.74% in the first two weeks of the month from the year before, just below the 3.77% median estimate of analysts surveyed by Bloomberg and up from the 3.48% reading in late January.
Core inflation, which excludes volatile items such a food and fuel and is closely watched by the central bank, came in at 3.63%, a touch above both the prior reading and median estimate of 3.61%.
Banxico, as the central bank is known, delivered a half-point interest rate cut to 9.5% on Feb. 6 as inflation remains in the target range, economic growth slows and the US government delays tariffs on Mexican goods. The bank said that “looking forward it could continue calibrating the monetary policy stance and consider adjusting it in similar magnitudes.”
While services represented one of the biggest inflation drivers in early February, fruits and vegetable prices tumbled 6.25% from a year prior, according to the national statistics institute. The report solidified views from many economists that another half-point cut is on tap at next month’s rate-decision meeting.
“Banxico was very dovish at its last meeting,” Kimberley Sperrfechter, an emerging markets economist at Capital Economics, wrote in a research note. “There’s nothing in the mid-month inflation data to change this stance.”
Growth Estimates
The February half-point rate cut came after four straight quarter-point reductions. Days before the move, US President Donald Trump agreed to delay the 25% tariffs on Mexican exports he’d announced Jan. 31. Yet the threat to the economy remains, hanging over billions of dollars in cross-boarder commerce, discouraging investment in Mexico.
Official data published last week showed that Latin America’s second-largest economy posted its biggest quarterly contraction since 2021 in the last three months of 2024. Domestic demand and private investment are faltering just as tensions with its top trade partner mount.
Banxico cut its 2025 economic growth estimate to 0.6% from the prior forecast of 1.2%, according to its quarterly report presented last week. It indicated slower private consumption and reduced investment can be expected to lead to weaker growth.
But the uptick in Mexico’s underlying inflation caused concern among some market analysts, who warned the rise could limit the central bank’s ability to loosen policy.
Rising core inflation means that Banxico will likely have “a hard time cutting to close or below 8%,” Carlos Capistran, chief economist for Canada and Mexico at Bank of America Securities, wrote in a research note.
Following the last rate decision, Banxico said that even if consumer price expectations for the medium and long term remained relatively stable, the balance of risks for inflation remains biased to the upside.
“Announcements of possible changes in economic policy by the new US administration have added uncertainty to the projections,” policymakers wrote in a statement accompanying their decision.
The central bank, which targets inflation at 3%, plus or minus one percentage point, holds its next rate-setting meeting on March 27.
--With assistance from Rafael Gayol and Robert Jameson.
(Updates with inflation details and analysis beginning in fifth paragraph.)