Mexican Inflation: A Pivotal Moment for Monetary Policy

Mexican headline inflation likely remained steady in December, as core inflation dropped slightly but continued to surpass the central bank's target. Analysts predict this could lead the Bank of Mexico to pause its interest rate cuts. Key data releases are anticipated before the bank's February decision.

Mexican headline inflation likely held steady in December, while core inflation showed a slight dip, though it remained above the central bank's target, according to a Reuters poll. This strengthens speculation that the Bank of Mexico might be considering a pause in its interest rate-cutting trajectory.

The poll, consisting of 19 analysts, forecast a 0.40% rise in headline prices from November and an unchanged annual rate of 3.80%. Core inflation, which strips out volatile items, dropped to 4.34% from 4.43% in the previous month, although this still exceeded the Bank of Mexico's target band of 3% plus or minus one percentage point.

In December, the Bank of Mexico reduced its interest rate by 25 basis points to 7% but suggested a cautious approach towards further cuts. Upcoming data, along with the minutes from the December meeting, will play a critical role in the central bank's policy direction ahead of its next scheduled decision on February 5.

(With inputs from agencies.)