Inflation in Mexico falls in the first half of August

According to official data, inflation in Mexico fell in the first half of August after reaching its highest level in over a year in July.

The national statistics agency INEGI reported on Thursday that the annual inflation rate was 5.16 percent in the first half of the month, a decrease from 5.57 percent in July.

This was the second consecutive two-week period in which the annual benchmark interest rate fell, after falling to 5.52% in the second half of July from 5.61% in the first half of the month.

The interest rate of 5.16 percent is below the consensus forecast of 5.33 percent from the latest Citibanamex survey, but still well above the Bank of Mexico's target of 3 percent.

Consumer prices fell 0.03% month-on-month, while the closely watched annual core inflation rate fell to 3.98% from 4.05% in July.

It was the first time in more than three years that annual core inflation fell below 4%.

The decline in core inflation – a figure that excludes volatile food and energy prices – continued the trend of the past year and a half.

The Bank of Mexico cited the 18-month decline as the main factor behind its recent surprise decision to cut its key interest rate by 25 basis points to 10.75 percent.

A clear majority of more than 30 banks, brokerage firms and research institutes surveyed by Citibanamex expect the central bank to make a further 25 basis point cut after its board's next monetary policy meeting on September 26.

The decline in both headline and core inflation in the first half of August makes a rate cut next month even more likely.

Inflation in fresh produce eases but remains high

The annual inflation rate for agricultural products (fruit, vegetables and meat) was 10.95 percent in the first half of August, down from 13.72 percent in July.

Prices for fruit and vegetables rose by 15.89% year-on-year, compared to 23.55% in July.

Meat inflation rose to 6.28 percent in the first half of August, compared to 5.36 percent in July.

Packaged food, beverages and tobacco products were 4.14 percent more expensive in the first half of the month than a year earlier, while annual inflation for non-food items was 1.80 percent.

Annual inflation for services was 5.11%. Within this category, housing costs rose by 3.98% and school fees by 6.14%.

Energy prices, including electricity and gasoline, rose 6.74% year-on-year.

What are the inflation prospects?

The median forecast of banks, brokerage firms and research organizations surveyed by Citibanamex assumes that the annual inflation rate will be 4.60% at the end of 2024.

According to their consensus forecast, inflation will continue to fall next year, reaching 3.86% at the end of 2025.

The Bank of Mexico currently forecasts inflation of 4.40 percent by the end of the year and a key interest rate of 3 percent by the end of 2025.

With reports from El Financiero and The Economist