Mexico inflation accelerates more than forecast in early May

MEXICO CITY (Reuters) – Mexican inflation picked up faster than expected in the first half of May, giving the central bank some food for thought as policymakers move to cut borrowing costs to alleviate the economic shock of the coronavirus crisis.

Data from the national statistics agency on Friday showed consumer prices rose in the year through early May by 2.83%, a level below the central bank’s target rate. Still, a Reuters poll of analysts had forecast a reading of 2.46%.

A breakdown of the agency’s data showed the cost of some foods, including tomatoes, as well as beer and some fuels, helped push up the cost of living in early May. In the second half of April, inflation stood at 2.21%.

The central bank targets an inflation rate of 3%, with a tolerance range of one percentage point above or below that.

Core inflation, which strips out some volatile food and energy costs, stood at a rate of 3.76%, the data showed. That was slightly above the 3.64% rate forecast by the poll.

Mexico’s economy is expected to suffer its biggest contraction in decades in 2020 due to the impact of the coronavirus, and the central bank last week cut its benchmark lending rate by 50 basis points to 5.50%.

Nevertheless, Mexico’s main interest rate is far higher than in leading western economies, and analysts expect borrowing costs to fall further in the months to come.

The latest data showed consumer prices rose 0.30% during the first half of May compared with the previous two-week period. A drop of 0.07% had been forecast. The core price index rose 0.24% over the period, beating expectations for an increase of 0.12%.