Consumer prices in Mexico rose higher than expected in December, driven by increased holiday season spending, putting pressure on the central bank to consider lowering interest rates in the coming months.
According to the National Statistics Institute, consumer prices have increased by 4.66% compared to the same period last year, compared to 4.32% in November. This reading was higher than the analysts’ average estimate of 4.57% in a Bloomberg survey. Core inflation, which excludes volatile items such as fuel, slowed to 5.09% from 5.3% in November – lower than economists’ expectations of 5.15%.
According to the minutes of the Mexican central bank, it has cautiously started discussing the possibility of lowering interest rates in 2024. Board members insist that any early rate cuts should be gradual, and Banco de México, the central bank, is the only main central bank in Latin America that has not yet started easing monetary policy. The key interest rate has remained at a record level of 11.25% for six consecutive meetings. The inflation target is set at 3% plus or minus one percentage point.
In the past month, the board of directors discussed the need to be cautious when starting the easing process, calling for “careful adjustments” according to the meeting minutes. While one policy maker mentioned the end of the first or second quarter of 2024 as possible dates to begin easing, another warned that the reductions may not come as quickly as financial markets anticipate.
The decision of the US Federal Reserve to consider cuts in 2024 opens the door for Banxico to follow suit. The Mexican bank has maintained its future guidance in its decision made in December, stating that it will keep the current rate “for some time.”
