(Bloomberg) — Mexico’s headline inflation unexpectedly accelerated in the first two weeks of the year while a closely-watched core gauge slowed as central bankers say they will discuss an eventual start to interest rate cuts.

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Consumer prices rose 4.90% compared to the same period a year earlier, up from 4.86% in late December, the national statistics institute reported Wednesday. The reading was above the median estimate of 4.78% in a Bloomberg survey. Core inflation, which cuts out volatile items such as fuel and food, slowed to 4.78% in line with economists’ median estimate.

Despite the fact that consumer prices continue to run above the 3% target of the central bank that’s known as Banxico, the steady reduction in the core inflation rate has brought relief to policymakers. Governor Victoria Rodriguez has mentioned that the institution will consider borrowing cost cuts in the coming months, with board members saying they should be gradual.

“Overall, it’s a positive reading, with surprises concentrated in very specific components, and core inflation showing a behavior similar to its pre-pandemic history,” said Pamela Diaz Loubet, Mexico economist at BNP Paribas. “We maintain our view that Banxico will hold off on rate cuts until March.”

The rise in the headline inflation rate came in part from a jump in rents, as well as costs at restaurants and lunch spots. Tomatoes and onions were among the non-core goods that contributed to the consumer price print, with increases thought to reflect the warming waters in the tropical Pacific as part of the climate phenomenon known as “El Niño.”

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“El Niño affects tomato prices, but not Banxico’s willingness to cut,” said Gabriel Casillas, head of Latin America Economics at Barclays Plc. “Disinflation is coming from the core component, so even though the headline number might be higher, the composition from the central bank standpoint is way better.”

Seasonal factors such as annual revisions to goods’ costs and wage increases are part of the expected jump in prices at the start of the year, Casillas said. Even though inflation accelerated in November and December, amid holiday spending, he says policymakers will likely still deliver a first cut in March.

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There’s a the risk that Banxico will “delay the first cut to later in the year” after it sees the jump in headline inflation, said Carlos Capistran, chief economist for Mexico and Canada at Bank of America, but he agreed that a March cut seems to be the most likely scenario.

The position of the US Federal Reserve, which is expected to carry out a series of cuts this year, also makes it easier for the Mexican bank to consider its own easing cycle. The chances for a February rate reduction remain low according to most analysts, with Monday’s Citi survey showing they see the next move in March, when they expect a quarter-point drop.

Mexico is home to Latin America’s only major inflation-targeting central bank that has refrained from starting an easing cycle. The Citi survey showed that analysts see inflation ending 2024 at 4% and for GDP expansion to be 2.4%, more modest than the prediction of Mexican President Andres Manuel Lopez Obrador, who said he’s hoping for growth closer to 3.5%.

–With assistance from Rafael Gayol.

(Update with analysts’ comments starting in fourth paragraph.)

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