Mexico's inflation speeds up through mid-March, interest rate seen on hold

By Aida Pelaez-Fernandez

MEXICO CITY, March 24 (Reuters) - Mexico's annual inflation rate accelerated in the first half of March to levels not seen since late 2024, official data showed on Tuesday, backing expectations that the central bank will keep its interest rate unchanged at its meeting this week.

Consumer prices in Latin America's second-largest economy rose 4.63% in the 12 months through mid-March, above a 4.35% increase expected on average by economists in a Reuters poll, and up from a reading of 3.92% a month earlier.

Consumer prices also rose 0.62% during the first half of March from the same period of February, exceeding the forecast of a 0.37% increase.

"The balance of risks supports Banxico (Bank of Mexico) keeping rates on hold for now," Pantheon Economics chief Latin America economist Andres Abadia said.

Banamex analysts also said the central bank is expected to keep borrowing costs unchanged again on Thursday, after policymakers unanimously decided to hold their key rate at 7% in February - their first pause since mid-2024.

The closely watched core inflation, which strips out some volatile food and energy prices, reached 4.46% in the 12 months through mid-March, the national statistics agency said, compared with a reading of 4.52% a month earlier.

Despite ebbing slightly, core inflation remains above Banxico's target of 3%, plus or minus one percentage point.

SLUGGISH ECONOMIC ACTIVITY

Mexico's economic activity undershot expectations in January, according to separate data released by statistics agency INEGI on Tuesday.

Activity fell 0.3% on a yearly basis and 0.9% month-on-month, INEGI reported. Economists polled by Reuters had expected a 1.6% increase and a 0.4% drop, respectively.