Mexico's annual inflation eases in June, core pressures remain

By Aida Pelaez-Fernandez

MEXICO CITY, July 9 (Reuters) - Mexico's annual inflation rate eased in June after rising for four straight months, though core prices kept climbing, fueling expectations the central bank could slow the pace of interest rate cuts, official data showed on Wednesday.

Consumer prices in Mexico rose 4.32% in the year through June, according to national statistics agency INEGI, roughly in line with the 4.31% expected by economists in a Reuters poll and slowing from the 4.42% reported in the previous month.

Mexico's central bank, also known as Banxico, has an inflation target of 3%, plus or minus one percentage point.

In contrast, 12-month core inflation, often seen as a better gauge of price trends because it strips out highly volatile food and energy prices, accelerated to 4.24% from 4.06% in May, hitting its highest level since April of last year.

The core inflationary pressures have stirred uncertainty regarding Banxico's future decisions on borrowing costs in Latin America's second-largest economy.

"Core inflation remains sticky, with persistent upward pressure from housing, food services and a seasonal jump in airfares, likely keeping some Banxico board members uneasy," said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics.

The Bank of Mexico lowered its benchmark rate by 50 basis points last month, though the decision by the central bank's five-member governing board was not unanimous.

In its decision, the bank's board of governors adjusted its forward guidance, dropping previous references to further 50 basis point cuts. Instead, it said it would continue to assess "additional cuts".

Deputy Governor Jonathan Heath voted to hold the rate last month after previously calling for a more cautious approach until inflation shows a more sustained downward trajectory.

July's inflation is expected to come in under 4%, meeting the upper end of the central bank's target range, Actinver analysts said in a note after Wednesday's inflation report.

"We anticipate that the Mexican central bank could cut its benchmark rate on two more occasions this year. We project that these cuts will occur in August and September, both cuts of 25 basis points," they added.

In June alone, headline consumer prices were up 0.28%, according to INEGI, while the closely watched core index stood at 0.39%, both in line with market forecasts.