Mexico’s inflation rate slowed more than expected in early September, raising the possibility of further interest rate cuts by the central bank, Banco de Mexico (Banxico), at its upcoming policy meeting. Official data revealed that annual headline inflation fell to 4.66% in the first half of the month, a notable decrease from August’s 5.16% and lower than the forecasted 4.73%. This marks the fourth consecutive fortnight of declining inflation, suggesting that the central bank may continue its monetary easing.
Banxico is expected to cut its benchmark interest rate by 25 basis points, following a similar reduction in August, which brought the rate to 10.75%. A Reuters poll indicates that another cut to 10.50% is anticipated as inflation continues to decelerate, supported by weaker economic activity and easing monetary policy in the U.S.
The decline in inflation was largely driven by falling food prices, including staple items such as avocados, tomatoes, and oranges. However, the education sector saw a notable rise in costs, particularly in university fees, which grew by 2.65% during the period.
Despite the slowdown, core inflation, which excludes volatile items like food and energy, remains elevated at 3.95%, close to Banxico’s target of 3%, plus or minus one percentage point. While some analysts argue that inflationary pressures are easing, others caution that political uncertainty and a tight labor market could limit the extent of future rate cuts.
As Mexico’s inflation trends downward, Banxico faces pressure to balance economic stability with maintaining investor confidence, especially as the country navigates political reforms and external risks such as the upcoming U.S. elections.