Mexico’s annual inflation jump ahead of August rate decision

Mexico’s inflation rate jumped higher than expected in early July, throwing a wrench into investor predictions of a Bank of Mexico interest rate cut in August.

Official figures released by the National Institute of Statistics and Geography on Wednesday showed consumer prices rose 5.61 per cent year-on-year in the first two weeks of July. This significantly surpassed analyst expectations. Core inflation, excluding volatile items like food and energy, remained steady at 4.02 per cent, meeting market forecasts.

In June, the Bank of Mexico kept interest rates at a record high of 11 per cent in June, with some members favouring a cut. Governor Rodriguez Ceja had hinted at potential future rate reductions.

This unexpected inflation surge might complicate plans for an August rate cut, as the central bank aims for inflation of 3 per cent with a 1 per cent tolerance range. The surge appears to be driven by non-core inflation, which accelerated to 10.64 per cent year-on-year.

Price increases were observed in fruits and vegetables (6.15 per cent), agricultural products (3.49 per cent), and energy (1.59 per cent).

This higher-than-anticipated inflation data raises uncertainty for investors who may have been anticipating a rate cut in August.

The central bank will likely reassess the situation based on this new information and its impact on future inflation projections.

Attribution: Bloomberg and The National Institute of Statistics and Geography (INEGI) data