Inflation in Mexico saw a slight increase in the first half of December, primarily driven by higher prices of fresh produce. However, core inflation reached its lowest level in over two years.

The consumer price index rose by 0.52% in the first two weeks of the month, resulting in a 12-month inflation rate of 4.46%, up from 4.32% at the end of November. The rise can be attributed to the surge in prices of fresh fruits and vegetables, while energy costs remained relatively stable compared to November.

On the other hand, core CPI, which excludes energy and fresh produce, experienced a 0.46% increase during the same two-week period. This brought the annual core inflation rate to 5.19%, down from 5.3% in November and marking its lowest level since October 2021.

The Bank of Mexico recently announced that it would maintain its benchmark interest-rate target at 11.25% for an extended period of time.

Analysts believe that the repetition of this statement reduces the likelihood of the central bank cutting interest rates at its February meeting. Out of 33 banks surveyed by Citigroup unit Citibanamex, all but two expect the Bank of Mexico to start lowering the rate in the first quarter. Nine predict a rate cut in February, while 22 anticipate a move in March.

Sticky services inflation remains a concern for the central bank. During the first half of December, services prices increased by 0.63%, driven by higher air fares and vacation packages ahead of the Christmas and New Year holiday season. The annual services inflation rate reached 5.4%, compared to 5.28% in November. Meanwhile, annual core goods inflation decreased from 5.33% to 5.02% by the end of November.

Sources: Wall Street Journal/Anthony Harrup

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