Mexico early-January prices exceed market forecasts, rate hikes expected

Mexico early-January prices exceed market forecasts, rate hikes expected

MEXICO CITY, Jan 24 (Reuters) – Mexico’s headline inflation accelerated and exceeded expectations in early January, information from the nationwide statistics company confirmed on Tuesday, marking the primary month-to-month pickup since September as markets brace for contemporary curiosity rate hikes forward.

Annual headline inflation within the first half of the month reached 7.94%, beating each the 7.77% recorded within the month of December and economists’ forecasts of seven.86%, although nonetheless beneath the two-decade excessive of 8.70% registered in August and September.

Meanwhile the core index, which strips out some unstable meals and vitality prices, hit 8.45% on an annual foundation, again on the rise after displaying some reduction in December. It additionally exceeded forecasts of 8.34%.

That means annual inflation stays far above the Bank of Mexico’s goal rate of three%, plus or minus one share level.

In an effort to tame rising prices, the central financial institution has elevated its key lending rate by 650 foundation factors to 10.50% in the course of the present mountain climbing cycle, which started in June 2021.

Banxico, because the central financial institution is understood, is contemplating one other curiosity rate hike at its subsequent financial coverage assembly on Feb. 9, based on the minutes of its final board assembly – a transfer markets already anticipate, together with a possible higher-than-expected hike.

The newest headline inflation determine, Capital Economics’ senior rising markets economist Jason Tuvey stated, “means that there’s a rising threat that Banxico delivers a bit extra tightening past the 25bp improve to 10.75% that we anticipate at February’s assembly.”

It is unlikely that the financial institution will make any cuts to the curiosity rate within the subsequent six months, Bank of Mexico board member Jonathan Heath stated in an interview final week.

In the primary half of January, based on statistics company INEGI, client prices rose 0.46% in comparison with the earlier two-week interval, whereas the core index rose 0.44%, each additionally exceeding market estimates.

“We nonetheless consider that deteriorating home fundamentals, decrease uncooked materials prices and bettering international provide circumstances will push inflation down over the approaching months,” Pantheon Macroeconomics’ chief Latin America economist Andres Abadia stated.

“But immediately’s numbers recommend that Banxico will stay significantly hawkish within the close to time period.”

Mexico’s Latin American peer Brazil, the place financial tightening is on pause, additionally launched mid-month inflation information on Tuesday, with prices barely beating market forecasts.

Reporting by Brendan O’Boyle and Gabriel Araujo; Editing by Steven Grattan

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