Mexico's consumer price index (CPI) eased to an annual 3.59pc January, the lowest in four years, as deceleration in agriculture prices offset faster inflation in energy and consumer goods prices.
This marks the lowest annual inflation since January 2021 and a significant slowdown from July's annual peak of 5.57pc, which was driven by weather-impacted food prices.
The result, reported by statistics agency Inegi on 7 January, was slightly below than the 3.63pc median estimate from 35 analysts polled in Citi Research's 5 February survey.
It compares with the 4.21pc headline inflation in December, marking five months of declines in the past six months.
Mexican core inflation, which excluded volatile energy and food, sped slightly to 3.66pc in January from 3.65pc in December, while non-core inflation decelerated to 3.34pc from 5.95pc the previous month.
Movement, in the non-core, said Banorte, was mostly explained by a positive basis of comparison, and "will reverse as soon as the second half of February to push the headline metric above 4pc," said Banorte.
Core inflation accelerated slightly to 3.66pc in January from 3.65pc in December, marking the second uptick after 22 consecutive months of deceleration. Services inflation slowed to 4.69pc from 4.94pc, while consumer goods inflation ticked up to 2.74 from 2.4pc.
Non-core inflation slowed sharply to 3.34pc from 6.57pc in December. This was largely due to base effects, Banorte said, adding these base effects are likely to fade this month to speed headline annual inflation back above 4pc.
The base effects most clearly impacted fruit and vegetable price inflation, contracting 7.73pc in January from 6.65pc annual inflation the previous month.
Moving forward, agriculture prices are highly exposed to the coming hot, dry season in Mexico, with the La Nina climate phenomenon, adding a layer of uncertainty.
Meanwhile, energy inflation accelerated to 6.34pc in January from 5.73pc the previous month, driven by higher LPG prices.
Electricity inflation, meanwhile, sped to 4.32pc in January from 2.65pc in December, while inflation slowed to 0.02pc in January for domestic natural gas prices from 5.67pc in December.
Monetary policy
The January inflation report followed the central bank's decision Thursday to reduce its target interest rate to 9.50pc from 10pc. This was the bank's sixth rate cut since March 2024, winding down from 11.25pc.
The 4-1 decision marked an acceleration in the current rate cycle, opting for a half-point reduction rather than the previous five 25-basis-point cuts.
In board comments with the announcement, the bank cited "significant progress in resolving the inflationary episode derived from the global shocks" in 2021 and 2022. These triggered rate hikes from 4pc in June 2021 to 11.25pc in April 2022, the target rate's historic high.
Taking into account the "country's weak economic activity" and this progress in reducing inflation, the board said it would "consider adjusting [the target] by similar magnitudes" at upcoming meetings.
