Mexican consumer prices rose a higher-than-expected 1.7 per cent in January, putting inflation at 4.72 per cent on an annual basis and setting the stage for a rate hike by the central bank later in the day.

Inflation had already touched an 18-year high at the start of January after a New Year’s Day rise of up to 20 per cent in gasoline prices as part of a government plan to liberalise fuel prices. The full-month figure compared with 0.38 per cent inflation in January 2015 and 2.61 per cent at an annualised rate this time last year.

Banks and brokerages surveyed by Citibanamex had forecast inflation between 0.85 per cent and 1.62 per cent for January. Energy prices drove the monthly figure higher, with a rise of 12.7 per cent during the month, the national statistics office Inegi, said.

Many analysts are expecting a 50 basis point rise in the Bank of Mexico’s key interest rate, from the current 5.75 per cent rate. However, a handful are pencilling in a smaller 25bps increase in a bid to contain inflation despite the recent stabilisation of the peso after a sharp drop in the wake of Donald Trump’s election as US president.

Mr Trump has yet to spell out his plans for achieving what he says is an improved North American Free Trade Agreement, a key campaign pledge. Nafta talks between the US and Mexico are expected to kick off in May.

“We think Banxico will deliver a 50bp hike, because inflation expectations are clearly rising,” Nomura analysts said in a note to clients.

“Mexico’s economy is enduring a shock to inflation, given the liberalisation to gasoline prices that could be transitory if the [exchange rate] were to stabilised. However, if Nafta renegotiations don’t go well, then the [exchange rate] could depreciate in the second half of 2017 and the shock to inflation would likely be a bit more prolonged,” it added.

“Either way, medium- and long-term inflation expectations have started to increase and that alone should push the central bank to hike the policy rate, in our opinion.”

The central bank announces its rate decision at 14.00 ET (19.00 GMT).

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