(Reuters) – Mexico’s early March inflation came in slightly below market forecasts on Monday, while January economic activity figures pointed to a slow down, opening the door for the central bank to press ahead with its monetary easing cycle.
Annual inflation in Latin America’s second-largest economy hit 3.67% in mid-March, statistics agency INEGI said, down from 3.74% in the previous month and below the 3.75% expected by economists in a Reuters poll.
The figure came ahead of a key central bank interest rate-setting meeting on Thursday, at which policymakers are seen delivering a second consecutive 50 basis-point cut to the benchmark interest rate, taking it to 9%.
Inflation remains within the Bank of Mexico’s 2% to 4% target range, which coupled with weakening economic activity has allowed the bank to lower borrowing costs.
Expectations for another rate cut were further backed by data on Monday that showed the country’s economy shrank 0.2% in January from December.
“The economy is becoming more sensitive to tighter financial conditions and a less favorable external backdrop,” Pantheon Macroeconomics’ chief Latin America economist Andres Abadia said in a note to clients.
“The recent figures support Banxico continuing to cut rates at upcoming meetings, starting with a 50bp move this week.”
Mexico’s annual core inflation, which some consider more reliable as it strips out volatile food and energy prices, slowed to 3.56% in mid-March from 3.63% a month earlier. Economists expected 3.57%, according to the Reuters poll.
In the fortnight alone, headline consumer prices were up 0.14% whereas core inflation hit 0.24%, both slowing slightly from the previous month.
After lowering interest rates by half a percentage point last month, the central bank had stated it would consider similar adjustments in the future if inflation kept cooling.
“The drop in core services inflation and weak activity seal the deal on a 50bp cut,” Kimberley Sperrfechter of Capital Economics said.
(Reporting by Gabriel Araujo in Sao Paulo, editing by Ed Osmond)
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