Mexico sees inflation drop in February

Mexico’s headline inflation slowed for the first time since October, increasing bets that central bankers will start a cycle of interest rate cuts later this month.

Consumer prices rose 4.4% in February compared with the same period a year prior, down from 4.88% in January, the national statistics institute reported Thursday. The reading was just below the 4.42% median estimate from analysts in a Bloomberg survey.

Core inflation, which excludes volatile items such as fuel and food, slowed to 4.64% from a year ago, roughly in line with economists’ 4.63% forecast.

Central bankers led by Victoria Rodriguez are closely following prices before deciding whether Latin America’s second-largest economy can begin relaxing monetary policy at its March 21 decision. Most analysts see central bankers cutting rates by a quarter of a percentage point at that meeting and gradually lowering borrowing costs through the rest of the year.

“Our forecast points to a sizable decrease in headline inflation, as core measures continue their gradual path of decline,” Jessica Roldan, chief economist at Casa de Bolsa Finamex, wrote in a note ahead of today’s report.

Policymakers led by Rodriguez have said that “advances” in their inflation outlook are allowing them to study rate cuts. “The most relevant issue to pay attention to is if we continue to see declines in agriculture products and services inflation,” Gabriel Casillas, managing director at Barclays Capital Inc, said ahead of the reading.

Banxico, as Mexico’s central bank is known, is the only major inflation-targeting institution of the region that has kept borrowing costs steady following a post-pandemic tightening cycle.

Brazil, Chile and Colombia are forging ahead with easing cycles that began last year. Still, the Federal Reserve remains on hold, giving Mexican central bankers more reason to remain cautious.