Mexico Inflation Hits 4.42% in May, Exceeds Target Range

Mexico's annual inflation rate accelerated to 4.42% in May, surpassing expectations and breaching the upper limit of the central bank's target range of 2% to 4%. Core inflation, excluding volatile items such as food and fuel, also rose to 4.06%, driven by increases in prices for wine, housing, poultry, fresh food, and core goods, despite a seasonal decline in energy costs including an 18% reduction in electricity rates. The Bank of Mexico (Banxico) has been cutting interest rates in half-point increments to address an economic slowdown, lowering the benchmark rate to 8.5%, and is widely expected to continue with a similar rate cut in its upcoming meeting. However, the recent inflation uptick challenges the expectation that Banxico will maintain its half-point rate-cut pace, with some analysts suggesting the central bank might reduce the size of the cut to 25 basis points or even pause the cycle to avoid fueling inflation further. The inflationary pressures amid economic deceleration pose a complex scenario for Banxico, balancing the need to support growth while containing inflation risks. Market analysts note the central bank appears determined to continue easing monetary policy despite these upside risks to inflation.