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Saturday, July 13, 2024

Mexico’s inflation decelerates despite high rates, strong peso

Mexico’s inflation continued its gradual slowdown in early July, in line with forecasts, supported by high interest rates and the strongest peso since 2015. Consumer prices rose 4.79% in the first half of the month compared to the same period last year, down from 4.93% in late June.

Core inflation, excluding volatile items, was 6.76% on an annual basis, slightly below the previous measure. The easing of cost pressures has been aided by the strong peso, which has been rallying against the dollar for the past 12 months.

Food items like avocados and onions drove consumer prices up in early July, while airfare tickets and travel packages also impacted inflation. On the other hand, gas prices fell during the period. Despite the ongoing deceleration, inflation remains above Banxico’s target of 3%, plus or minus a percentage point.

The peso’s impressive performance has made it one of the most profitable currency trades in the last 12 months, gaining approximately 21%. Banxico left its key interest rate unchanged at 11.25% for the second consecutive month in June after a record 725-basis point hiking campaign that started in 2021.

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