Mexico’s annual inflation hits 21-yr high in June, more rate hikes seen

Mexico’s annual inflation accelerated in June to a level not seen since early 2001, official data showed on Thursday, leaving the central bank little choice but to continue its monetary tightening to tame spiraling consumer prices.

Mexican consumer prices rose 7.99% in the year through June, the national statistics agency said, slightly above a 7.95% consensus forecast of economists poll.

That was also far above the central bank’s target of 3%, plus or minus a percentage point, and marked the highest level since January 2001, when Mexico’s 12-month inflation stood at 8.11%.

The latest inflation figures are expected to lead Banxico, as the central bank is known, to keep raising rates after a record 75-basis points hike last month, when it warned it would hike rates again and by as much to curb inflation.

The bank, which has increased rates by 375 basis points since mid-2021, will announce its next monetary policy decision on Aug. 11.

“A 75bp hike in the policy rate in August to 8.5% looks almost certain, and the risks to our forecast that the policy rate will end the year at 9.5% increasingly look skewed to the upside,” said William Jackson, chief emerging markets economist at Capital Economics.

Consumer prices rose 0.84% in June, non-seasonally adjusted figures showed, ahead of a market forecast of a 0.81% increase.

The closely watched core index, which strips out some volatile food and energy prices, rose 0.77% during the month, below expectations of a 0.8% rise.

Minutes released Thursday from the central bank’s June monetary policy meeting showed that most of the bank’s five board members agreed that expectations for inflation for 2022 and 2023 had again increased considerably.

Analysts predicted inflation will stop rising before the year’s end, but will remain around their current high.

“We believe that inflation will peak in August or September, and should stay more or less stable around 7.5% and 8.0% for the rest of the year,” Adrian de la Garza, chief economist at Citibanamex, said in a call with reporters Thursday.

Andres Abadia, Latin America economist at Pantheon Macroeconomics, called the data a bad end to the second quarter, with pass-through from higher commodity prices the key issue.

“That said, we still expect a gradual downtrend in inflation over the second half of the year, thanks to the lagged effect of tighter monetary policy, and the impact of recent government policies to put a lid on key prices,” Abadia said in a note to clients.