Mexico's Annual Inflation Hits Lowest Since August 2021, Beating Forecasts

• Mexico's annual inflation rate slowed in May for a fourth consecutive month to 5.84%, data from the National Institute of Statistics and Geography (INEGI) showed, beating forecasts and continuing a downward trend spurred by a long cycle of rate hikes.
• Headline inflation came in below a forecast of 5.90% and is now at its lowest since August 2021 (8.70%).
• Nonetheless, analysts say future drops in inflation may now be trickier, prompting a delay in rate cuts.
• Jason Tuvey, Deputy Chief Emerging Markets Economist at Capital Economics, expects headline inflation to fall further over the coming months. However, the strong labour market and rapid wage growth mean that inflation is likely to stay higher than most anticipate over the next couple of years. As a result, while the tightening cycle has ended, rate cuts are likely to come later and be more gradual than most anticipate.
• Banxico, as the Mexican central bank is known locally, kept the benchmark interest rate stable at 11.25% last month for the first time in nearly two years, but warned that the rate needed to stay at this level for an "extended period."
• Banxico does not expect inflation to reach its target rate of 3%, plus or minus a percentage point, until late 2024.

(Source: Reuters)