Mexico’s inflation increased more than anticipated in the first six weeks of March. This complicates the outlook for the monetary policy, just days before the Central Bank’s decision on interest rates, while global risks linked to the Middle East conflict create further uncertainty.
The inflation rate is higher than expected
According to Mexico’s National Statistics Agency, consumer prices rose by 4.63% on an annual basis in the second largest economy in Latin America in March.
This reading was above the expectations of nearly all the analysts that were surveyed. It also marked an increase over late February’s print of 4.13%.
Separate figures also show that inflation has risen from 3.92 % in the first six months of February.
This latest number represents the highest since 2024, and highlights renewed pressure on prices at a moment when policymakers were expecting a cooling trend.
The core inflation rate, which excludes volatile components such as food and energy, fell to 4.46 %, down from 4.48% the prior period. This is slightly lower than consensus expectations.
It is still above the target of the Central Bank, which is 3% plus or less one percentage point.
Consumer prices increased by 0.62% on a monthly basis in the first six months of March. This was significantly higher than expected, which had been 0.37%.
The increase in food and service prices was largely due to this.
The price of tomatoes increased by 32.17% while the cost of airfares jumped 22.8%.
Egg prices fell by 1.33% and the cost of internet, phone, and pay TV services dropped by 3.47%.
Rate decision hangs in balance
Inflation data is released ahead of Bank of Mexico policy meeting where the officials will have to make a tough decision about interest rates.
Banxico is the central bank’s name. It paused last month its rate-cutting cycle after almost two years.
The analysts are divided over the result.
Bloomberg surveyed 29 economists, and 15 predicted that policymakers would keep the benchmark interest rate at 7%. The other 14 expected a reduction of a quarter point to 6.75 percent.
The latest economic data, say economists, limits the room for the central bank to relax policy.
These figures show that there is very little space for the central bank to reduce interest rates. “These figures confirm that the central bank has very little room to cut interest rates,” Andres said in a Bloomberg article.
The latest economic data point also to a weakening of growth.
Mexico’s economy shrank by 0.3% in the first month of this year, following a 3.26% rise from December.
Inflation pressures are exacerbated by global risks
The outlook is further complicated by external factors.
Mexico has limited exposure to direct trade, but the ongoing Middle East conflict is driving up oil prices. This increases inflationary risk.
Central bank officials have already delayed their timeline to bring inflation into target range. They now expect it will reach the 3% mark by 2027’s second quarter, which is later than originally projected.
Mexico’s inflation surges by 4.63% to early March: Here’s Why appeared first on The ICD
