Mexico's annual inflation rate picked up pace in May, surpassing the central bank’s target ceiling, according to official figures released on Monday.
This development adds uncertainty to the outlook for borrowing costs in Latin America’s second-largest economy.
Data from the national statistics agency INEGI showed that consumer prices increased by 4.42% over the 12 months ending in May, higher than the 4.38% forecast in a Reuters poll and up from 3.93% in April.
Mexico’s central bank, Banxico, targets inflation at 3% with a tolerance of plus or minus one percentage point, but analysts are now divided on what the bank’s next monetary policy steps will be.
Last month, Banxico lowered its benchmark interest rate by 50 basis points for the third straight time, bringing it down to 8.5%, the lowest level since 2022.
Its upcoming monetary policy decision is set for 26th June, and the bank has indicated that it anticipates the inflation situation will permit it to continue easing monetary policy, Reuters news agency reports
“The Bank of Mexico should pause the cycle of interest rate cuts, given the inflation rebound,” according to Banco Base's economic analysis director Gabriela Siller.
Meanwhile, economists at Capital Economics said in a client note that the inflation rate hike “was mainly driven by stronger non-core prices and so is unlikely to trouble officials at the central bank.”
In addition, Goldman Sachs analysts noted that although a 50-basis-point rate cut might still occur in June, the committee will likely need to slow its pace of easing to 25 basis points in August “if we do not see more favourable inflation prints in the coming months.”
In May alone, headline consumer prices increased by 0.28%, according to INEGI, while the closely monitored core index, which excludes certain volatile food and energy prices, rose by 0.30%. Both figures slightly exceeded market expectations.