Mexico’s annual inflation rate has slowed to its lowest level in nearly four years in the first half of January, based on the latest official inflation out-turn from Mexico’s statistics agency, INEGI.

This low inflation out-turn is likely to encourage the central bank to continue reducing borrowing costs. Latin America’s second-largest economy, 12-month headline inflation came in at 3.69 per cent in early January, which is the lowest rate since February 2021, falling in line with the central bank’s target range of three per cent, plus or minus one percentage point.

Annual inflation was lower than both the previous month’s 4.44 per cent and the 3.78 per cent forecast by economists polled by Reuters.

The slowdown in consumer price growth was driven by lower non-processed food costs, which helped offset a slightly higher-than-expected reading in the core index. 

The core index is considered more reliable by some as it excludes volatile energy and food prices. In December, the Mexican central bank, known as Banxico, implemented its fifth interest-rate cut of the year, reducing its key lending rate by 25 basis points to 10.00 per cent, citing progress on inflation. 

At that time, the bank’s board indicated that further and larger cuts could be considered in the future. However, some economists believe that external pressures and an increase in core prices could complicate efforts to accelerate monetary easing.

Mexico is preparing for additional price pressures as US President Donald Trump threatens tariffs on its exports and mass deportations. Core inflation rose by 0.28 per cent in early January, with the annualised core rate reaching 3.72 per cent, exceeding market expectations of 3.68 per cent and the previous month’s 3.62 per cent.