Mexican Inflation Edges Higher

Mexican inflation experienced a slight increase in November, breaking a 10-month trend of decline. The rise can be attributed to seasonal factors, particularly an increase in electricity costs. However, overall consumer price increases were lower than expected.

According to the National Statistics Institute, the consumer price index saw a 0.64% increase last month. This pushed the 12-month inflation rate up to 4.32%, compared to 4.26% at the end of October. It is worth noting that this is the first increase in the annual rate since January.

The surge in energy costs was primarily driven by a 22% jump in electricity rates due to the discontinuation of summertime subsidies for residential users in several cities. These subsidies, which aim to assist households with air conditioning expenses, typically come into effect in May.

Looking at core CPI, which excludes energy and fresh produce prices, there was a modest increase of 0.26% in November. The year-on-year comparison revealed a rise of 5.30%, slightly lower than the annual rate of 5.50% observed in October. Additionally, services experienced a 0.42% increase in November, resulting in a year-on-year growth rate of 5.28%.

The gradual decline in inflation throughout the year has led the Bank of Mexico to maintain its current monetary policy stance over the past five meetings. However, in November, the bank adopted a more accommodative tone, leading to speculation that an interest-rate cut could be introduced in the first quarter of 2024.

Central bankers have indicated that they will begin considering rate cuts early next year, with no changes expected in the overnight interest rate target during its December 14 decision. Since March, the rate has remained at a record-high level of 11.25%. It is important to note that the central bank’s inflation target stands at 3%.