Mexico headline inflation undershoots all estimates in December

Jan 8 (Reuters) - Mexico's headline inflation slowed more than expected in December, data from statistics agency INEGI showed on Thursday, coming in below all forecasts in a Reuters poll of economists.

• Consumer prices in Latin America's second-largest economy rose 0.28% in the month, compared with expectations for a 0.4% increase.

• Annual inflation came in at 3.69%, below the 3.8% rate forecast by economists and recorded a month earlier.

• The core index, which strips out some volatile food and energy prices, rose 0.41% during the month and 4.33% in 12 months, roughly in line with market forecasts.

KEY CONTEXT

• The data is seen as crucial in shaping the Bank of Mexico's next steps ahead of its February 5 monetary policy decision.

• The bank cut its benchmark interest rate by 25 basis points last month to 7% but revised its forward guidance in a way that suggested a pause may be coming.

• Sticky core inflation remains a concern for policymakers.

• The bank, which targets inflation at 3% plus or minus a percentage point, will publish the minutes from its December meeting later on Thursday.

MARKET REACTION

• Capital Economics' emerging markets economist Kimberley Sperrfechter said that the easing in price pressures in December leaves the door open to a rate cut next month.

• "But the central bank's cautious tone, alongside still elevated core price pressures, means that we think a hold is a slightly more likely outcome," she added.