Mexico inflation rises to year-and-a-half high in March, prompts caution

By Aida Pelaez-Fernandez

MEXICO CITY, April 9 (Reuters) - Mexico's annual inflation rate accelerated in March to its highest level since October 2024, official data showed on Thursday, raising questions about the future of borrowing costs in Latin America's second-largest economy.

Consumer prices in Mexico rose 4.59% in the year through March, according to national statistics agency INEGI, up from 4.02% the previous month. The rate moved further away from the central bank's target range, despite landing below economists' forecasts in a Reuters poll that expected a 4.63% increase.

March's inflationary uptick was tied to higher prices for basic goods - such as fruits and vegetables - and transport services, as global fuel costs surged due to the U.S.-Israeli war on Iran .

Mexico's central bank, also known as Banxico, last month resumed its easing cycle with in an unexpected 25-basis-point cut that left its benchmark interest rate at 6.75%. It noted that further easing remains conditional on global inflation risks stemming from the Middle East conflict.

"Banxico is likely to remain cautious, with rate cuts delayed until inflation pressures ease more convincingly," Pantheon Macroeconomics' chief Latin America economist Andres Abadia said in a note.

"The ceasefire will ease some pressure on energy markets, helping to stabilize gasoline prices and inflation expectations," he added.

He said he expects Banxico to hold interest rates steady during the second quarter.

"They might make a pause in their next announcement, but then they would resume the cuts," said Gabriela Siller, Banco Base's economic analysis director, adding that she expects the benchmark rate to end the year at 6.5%.

The central bank is expected to release the minutes of its latest meeting later on Thursday.

Banxico has an inflation target of 3%, plus or minus a percentage point, but keeps a close eye on core inflation, which strips out some volatile food and energy prices.

The annual core index decelerated to 4.45% from a prior 4.50% registered in February, official data showed, also landing slightly below expectations of a 4.46% increase.

In March alone, consumer prices MXINFL=ECI rose 0.86% while the core index MXCPIX=ECI rose 0.38%.