Mexico inflation slows again amid high rate, strong peso

BLOOMBERG

Mexico’s inflation extended its gradual slowdown in early July, roughly in line with forecasts, helped by double-digit interest rates and the strongest peso since 2015.
Consumer prices rose 4.79% in the first half of the month compared to the same period a year earlier, down from 4.93% in late June, the national statistics institute reported. The result was just above the 4.77% median estimate of economists surveyed by Bloomberg.
Core inflation, which excludes volatile items such as fuel and food, was 6.76% on an annual basis, below the previous measure of 6.86% and just higher than the median estimate of 6.73%.
Consumer price increases continue to trend lower from last year’s peak, but remain above Banxico’s target of 3%, plus or minus a percentage point. The easing of cost pressures has been supported by the “super peso” as it extends its 12-month rally against the dollar.
Food items including avocados and onions were among the top consumer price drivers in early July, recording increases of 18.5% and 16.1%, respectively, while airfare tickets and travel packages also pressured inflation. On the other hand, gas fell 2.8% during the period.
“The deceleration of services inflation will be slower, but we’ll see that overall inflation will continue to moderate in the short-term,” said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics.
The peso has been one of the most profitable currency trades of the last 12 months, with accumulated gains of roughly 21%.
Banxico, as the central bank is known, left its key interest rate unchanged at 11.25% for the second consecutive month in June after a record 725-basis point hiking campaign that began in 2021.