By Aida Pelaez-Fernandez
MEXICO CITY, May 7 (Reuters) – Mexico’s annual headline inflation rate decelerated in April for the first time since December, official data showed on Thursday, opening the door for the central bank to cut its benchmark interest rate later in the day.
Consumer prices in Latin America’s second-largest economy rose 4.45% in the year through April, easing from March’s 4.59% increase and below the 4.50% increase forecast by economists polled by Reuters.
The closely watched core index, which strips out some volatile food and energy prices, also slowed to 4.26% from 4.45% in March and slightly below expectations of a 4.27% increase.
The dip in inflation “gives policymakers at the central bank room to deliver one final 25-basis-point rate cut in the cycle,” William Jackson, chief emerging markets economist at Capital Economics said, pointing out that the Bank of Mexico will also likely consider Mexico’s sluggish economy in its decision. The Mexican economy shrunk 0.8% in the first quarter.
The central bank, also known as Banxico, is scheduled to announce its monetary policy decision later on Thursday after an unexpected 25-basis-point cut in March, which brought its benchmark interest rate down to 6.75%.
The market expects Banxico on Thursday to end the monetary easing cycle that began over two years ago with a final cut to the benchmark rate.
Despite the recent easing, inflation remains well above the central bank’s target of 3%.
“Banxico’s potential rate cut aims to provide a boost to an economy that is growing by just 1.4% this year,”, CopKapital analysts said in a note.
In April alone, consumer prices rose 0.20% from the month before, according to non-seasonally adjusted figures, below economists’ expectations of a 0.25% hike, while core prices rose 0.31%, in line with market forecasts.
(Reporting by Aida Pelaez-Fernandez and Ricardo Figueroa; Editing by Toby Chopra and Susan Fenton)
