Inflation in Mexico accelerated in January for the third consecutive month, driven by higher prices of fresh produce. Meanwhile, core inflation has continued to ease, according to the National Statistics Institute.
Rising Consumer Price Index
The consumer price index rose by 0.89% last month, pushing the 12-month inflation rate up to 4.88%, compared to 4.66% in December.
Core Inflation Eases
Core CPI, which excludes energy and agricultural prices, increased by 0.40% in January. On a yearly basis, core inflation stood at 4.76%, down from 5.09% in December.
Factors Driving Inflation
The rise in overall inflation can be attributed to higher prices of fruits and vegetables, particularly tomatoes, which saw a significant increase of 52%. On the other hand, airfares and vacation packages experienced a decline after the holiday season.
Bank of Mexico's Caution
The increase in inflation has made the Bank of Mexico cautious about reducing interest rates. The central bank aims to bring inflation back to its target of 3%. As a result, it is widely expected that the overnight interest-rate target will remain at 11.25% in the upcoming monetary policy decision.
Expectations for Future Interest Rate Cuts
Many banks surveyed by Citigroup's unit, Citibanamex, anticipate that the Bank of Mexico will begin cutting interest rates at its meeting in March. However, there is a dilemma for the central bank: should its actions be guided by general inflation or core inflation?