Mexico inflation quickens more than expected to nearly 2-year high

MEXICO CITY: Mexican annual inflation accelerated faster than expected in the first half of March to reach its highest level in almost two years, surpassing the central bank's target range, official data showed on Wednesday.

The national statistics agency (INEGI) said consumer price inflation quickened to 4.12% during the first two weeks of March, beating the final consensus forecast of a Reuters poll of analysts for a headline reading of 3.91%.

In late February, the inflation rate stood at 3.68%, and the new level is the highest since the second half of May 2019, according to data published by the Mexican central bank.

The stronger-than-forecast acceleration in inflation may harden expectations that the Bank of Mexico (Banxico) will keep its key interest rate on hold when its board convenes on Thursday to announce its latest monetary policy decision.

"Overall, this data release is probably the final nail in the coffin for Banxico's easing cycle. We expect it to keep the policy rate on hold at 4.00% at tomorrow's meeting," said Nikhil Sanghani, an analyst at Capital Economics.

"But with inflation likely to fall later this year, we doubt the central bank will be in a rush to hike rates anytime soon."

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

A poll of analysts earlier this week forecast the bank's five-member board would likely leave interest rates unchanged for the time being, though opinions were divided.

The INEGI data also showed that consumer prices rose by 0.53 percent during the first half of March compared to the previous two week period. A increase of 0.33% had been forecast.

The core rate of annual inflation, which strips out some volatile items, advanced to 4.09%. A rate of 3.94% was forecast.