Mexico core inflation higher than expected in early Nov, rate hikes to continue

© Reuters. FILE PHOTO: A view of Mexico city's skyline during a sunset October 17, 2011. REUTERS/Carlos Jasso (MEXICO - Tags: CITYSCAPE)/File Photo

By Gabriel Araujo

MEXICO CITY (Reuters) - Mexico's annual consumer prices slowed more than expected during the first half of November, but the core inflation index - which remains a main concern in the country as it grapples with high costs - came in above market forecasts.

Data from national statistics agency INEGI showed on Thursday that annual headline inflation in Mexico hit 8.14% in the period, down from 8.53% a month ago and also below consensus of 8.24% in a Reuters poll of economists.

However, the closely watched core price index, which strips out some volatile food and energy prices and was recently dubbed "the greatest concern" by Bank of Mexico board member Jonathan Heath, continued to trend up, reaching 8.66% on an annual basis.

Economists polled by Reuters had expected it to come in at 8.60%, after hitting 8.39% in mid-October.

The latest inflation figures backed expectations that the local central bank, known as Banxico, would keep hiking interest rates.

"Overall, headline inflation continues to edge down in Mexico, but core inflation remains sticky, which will continue to keep policymakers uneasy," said Pantheon Macroeconomics' chief Latin America economist, Andres Abadia.

In a podcast published on Wednesday, Banxico's Heath said the central bank was "not ready yet to decouple" from the U.S. Federal Reserve and that more rate hikes were needed to control inflation.

On a monthly basis, Mexico's headline inflation rose 0.56% while the core index was up by 0.34% in mid-November, the statistics agency said. Economists had projected increases of 0.65% and 0.30%, respectively.

The fresh core inflation uptick is set to "strengthen the hand of the hawks at Banxico in the debate over how much more tightening to deliver," said Jason Tuvey, senior emerging markets economist at Capital Economics.

Borrowing costs in Latin America's second-largest economy currently stand at 10% after a monetary tightening cycle started in mid-2021.

Banxico is scheduled to release later on Thursday minutes of its most recent policy-setting meeting.

Economists at Grupo Financiero Banorte said they expect additional details on the conditions needed for Banxico to decouple from the Fed as well as the "appropriate" level for its terminal rate.

Latin American peer Brazil, where the tightening cycle has already came to an end, also released inflation data on Thursday. Consumer prices there increased 0.53% in the month to mid-November.