Mexico annual inflation decelerates in October but concerns persist

By Aida Pelaez-Fernandez

MEXICO CITY (Reuters) -Mexico's annual inflation decelerated in October, official data showed on Friday, staying within the central bank's target range, although analysts remained cautious about the path ahead.

Consumer prices in Mexico rose 3.57% in the year through October, according to national statistics agency INEGI, down from 3.76% the previous month and roughly in line with economists' forecasts in a Reuters poll that pointed to a 3.56% increase.

Despite the inflation rate remaining within the central bank's target range of 3%, plus or minus a percentage point, for the fourth month in a row, analysts and policymakers have adopted a cautious tone.

"We anticipate a rebound in annual inflation in early 2026 as a result of the effects of tax increases," economists at Banamex said in a note.

For next year, Gabriel Casillas, Barclays head of LatAm Economics Research, particularly mentioned the expected tax increase on soft drinks, the imposition of tariffs on imports from non-FTA countries and the awaited 12% minimum wage increase, as the most relevant issues hitting inflation.

"On the monetary policy side, we still expect Banxico to match the U.S. Fed's actions one-to-one in upcoming meetings, taking the reference rate to 7.00% before year-end 25 and then to 6.50% by year-end 26," Casillas told Reuters.

Mexico's central bank, also known as Banxico, lowered borrowing costs on Thursday for the fourth consecutive time, reducing its benchmark rate by 25 basis points to 7.25%, its lowest level since May 2022.

The closely watched core index, which strips out some volatile food and energy prices, increased 0.29% on a monthly basis, compared with expectations of a 0.28% increase.

GROWTH CONCERNS

Together with concerns about core inflation, the bank's policymakers cited the ongoing weakness in Mexico's economy.

Banxico's governor Victoria Rodriguez told Imagen radio late Thursday that she expects the economy to maintain moderate growth, with persisting slack conditions.

The governor, who voted in favor of the latest rate cut, noted that the bank's quarterly report due at the end of November will update its gross domestic product and inflation forecasts.

(Reporting by Aida Pelaez-Fernandez and Natalia Ramos; Additional reporting by Noe Torres; Editing by Ros Russell and Hugh Lawson)

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