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Itaú Says Bi-Weekly CPI Data Give Space For August Rate Cut

MEXICO
  • The larger-than-expected increase in headline inflation in the first half of July was driven by a further jump in volatile fruit and vegetable prices. Core inflation continued to moderate on the back of an easing of goods inflation (3.08% y/y vs. 3.24% prior), offsetting persistent services inflation (5.17% y/y vs. 5.12%), due to higher airfares.
  • Itaú believes these data should give some support for most Banxico members to cut its policy rate by 25bp in the August 8 meeting. They expect non-core fruit and vegetable prices to revert to the mean quickly, while lower core inflation amid a weaker activity outlook and highly restrictive monetary stance should give space for a rate cut.
  • USDMXN is currently up 1.3% on the day around 18.38, albeit it has pared gains from an intra-day high of 18.4308. As noted, notable resistance for USDMXN is found at 18.5988, the Jun 28 high.

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