Markets News

UPDATE 1-Mexico inflation above forecasts, rate cut still expected

(Recasts story, adds economist’s comments, background details)

MEXICO CITY, June 24 (Reuters) - Mexican inflation rose more than expected during the first half of June, data from the national statistics agency showed on Wednesday, though the central bank is still seen cutting its benchmark interest rate again on Thursday.

Consumer prices rose 3.17% in the year through the first half of June, while the closely watched core price index, which strips out some volatile food and energy prices, climbed 3.66% in the same period, the INEGI statistics agency said.

That compares with expectations for annual headline inflation of 3.05% in early June, and core inflation of 3.50%, according to a Reuters survey.

With the Mexican economy hit hard by the fallout from the coronavirus pandemic, as confirmed infections and deaths continue to surge, inflation will likely be contained.

The International Monetary Fund on Wednesday forecast that Mexico’s economy, Latin America’s second largest, could contract by 10.5% this year.

“The deep recession and further widening of the output gap should contribute to keep inflation in check by reducing pricing power and limit the pass-through from a weaker Mexican peso to higher final consumer prices,” Goldman Sachs economist Alberto Ramos said in a note to clients.

Some 26 of 27 analysts polled by Reuters predict the Bank of Mexico will cut the key interest rate by 50 basis points to 5.0% at its Thursday monetary policy meeting, in a bid to alleviate the pandemic’s economic pain.

“The inflation backdrop should allow the central bank to ease further in coming months,” said Ramos.

The latest data showed consumer prices rose 0.32% during the first half of June compared with the previous two-week period. Headline inflation was expected to have risen 0.21%. The core price index climbed 0.29% in early June, above expectations for a 0.14% rise. (Reporting by Anthony Esposito; editing by Jonathan Oatis)