Inflation falls more than expected in the first half of August

Inflation in Mexico fell in the first half of August after reaching its highest level in more than a year in July, official data showed.

The national statistics agency INEGI reported on Thursday that the annual inflation rate was 5.16% in the first half of the month, down from 5.57% recorded in July.

This is the second consecutive two-week period in which the headline annual rate has declined, after falling to 5.52% in the second half of July from 5.61% in the first half of the month.

The 5.16% rate is below the consensus forecast of 5.33% derived from the latest Citibanamex survey, but remains well above the Bank of Mexico’s 3% target.

Consumer prices fell 0.03% on a fortnightly basis, while the closely watched core annual inflation rate eased to 3.98% from 4.05% in July.

This is the first time in more than three years that the annual core inflation rate has fallen below 4%.

The inflation rate for the first half of August is still well above the 3% target set by the Bank of Mexico. (Archive)

The decline in core inflation – a measure that excludes volatile food and energy prices – continued the trend seen over the past year and a half.

The Bank of Mexico cited the 18-month decline as a major factor in its recent surprise decision to cut its benchmark interest rate by 25 basis points to 10.75%.

A strong majority of more than 30 banks, brokers and research firms surveyed by Citibanamex predict the central bank will make a further 25 basis point cut after its next policy meeting on September 26.

The decline in headline and core inflation in the first half of August makes an interest rate cut next month even more likely.

Fresh produce inflation eases, but remains high

Annual inflation for agricultural products – fruits, vegetables and meat – was 10.95% in the first half of August, down from 13.72% in July.

Fruit and vegetable prices increased by 15.89% over a year, compared to 23.55% in July.

Meat price inflation increased to 6.28% in the first half of August, compared to 5.36% in July.

The price of meat increased by 6.28% per year during the first half of August. (Cuartoscuro)

Packaged food, beverages and tobacco were 4.14% more expensive in the first half of the month than a year earlier, while annual inflation for non-food goods stood at 1.80%.

Annual inflation for services was 5.11%. In this category, housing costs increased by 3.98% and tuition fees increased by 6.14%.

Energy prices, including electricity and gasoline, increased by 6.74% on an annual basis.

What is the outlook for inflation?

The median forecast of banks, brokers and research firms surveyed by Citibanamex is for the headline annual inflation rate to be 4.60% by the end of 2024.

Their consensus forecast is that inflation will continue to decline next year to reach 3.86% by the end of 2025.

The Bank of Mexico currently forecasts inflation of 4.40% at the end of the year and an overall interest rate of 3% at the end of 2025.

With reports from El Financiero and The Economist

Inflation fell more than expected in the first half of August appeared first on Mexico News Daily