UPDATE 3-Mexico inflation eases slightly, central bank still seen hiking rates

Reuters
Updated ·2 min read

(Adds finance ministry and analyst's comments)

MEXICO CITY, May 24 (Reuters) - Mexican inflation eased slightly in the first half of May but still remained well above the central bank's target, official data showed on Tuesday, likely giving the Bank of Mexico ammunition to again raise interest rates in June.

Annual headline inflation dipped to 7.58% in early May from 7.65% during the last two weeks of April, data by national statistics agency INEGI showed. A Reuters poll of analysts forecast inflation of 7.60%.

Compared with the previous two-week period, inflation prices fell 0.06% during the first half of May.

"While Mexico's headline inflation edged down to 7.6% year over year in the first two weeks of May, this will provide little comfort to the central bank as price pressures remain stubbornly strong," said Nikhil Sanghani, emerging markets economist at Capital Economics.

Banxico, as Mexico's central bank is known, has increased its benchmark rate by 300 basis points over the last eight monetary policy meetings as it struggles to wrestle inflation to its target of 3%, plus or minus one percentage point.

"The risks are still skewed toward Banxico becoming more aggressive and delivering a 75-basis-point rate hike at its next meeting in June," Sanghani said.

Mexico's finance ministry on Twitter said the latest figures showed inflation was being "controlled," partly thanks to government fuel subsidies and a recently implemented anti-inflation plan.

Sanghani believes the government's measures are indeed helping.

"Government caps on gasoline and natural gas prices, alongside price freezes for key foodstuffs, will help to push down fuel and food inflation by the end of this year," he said.

However, the closely watched core price index, which strips out some volatile food and energy items, was up 0.31% in early May, and the annual core inflation rate climbed to 7.24%.

Banxico hiked rates 50 basis points earlier this month to 7.00%, saying it may take "more forceful measures" to tame price pressures. (Reporting by Brendan O'Boyle; Additional reporting by Anthony Esposito; Editing by Bernadette Baum, Bill Berkrot and Mark Porter)