Mar.7 (Dow Jones) -- A drop in food prices in February caused Mexico's inflation to ease to its slowest rate in more than two years, fueling expectations that the Bank of Mexico's next move will be to cut interest rates.

The consumer price index slipped 0.03% in February from January, and was up 3.94% from a year earlier, the National Statistics Institute said Thursday. It was the slowest 12-month inflation rate since December 2016, and down from 4.83% at the end of last year.

Overall food and beverage prices fell 1.46% in February from January, led by a 9.13% decline in prices of fresh fruits and vegetables. Energy costs rose 0.83% on a 1.75% increase in regular gasoline prices.

Easing inflation, along with a recent slowdown in economic activity, has fed expectations that the Bank of Mexico is through raising interest rates and can start to lower borrowing costs without compromising the goal of getting inflation back to its 3% target.

Eighteen of the 23 banks polled this week by Citibanamex predicted that the central bank's next interest-rate move will be a reduction from the current 8.25%, with half of them seeing the change this year and the rest in early 2020.

The central bank left interest rates unchanged at its February meeting, but has expressed concern about sticky core inflation, which excludes agricultural and energy prices.

Core CPI rose 0.43% in February from January, which brought the annual rate down to 3.54% from 3.60% in January.

"We think the Bank of Mexico's concerns about stubborn core inflation are overdone," Capital Economics said in a report.

Easing food inflation should reduce pressure on core prices, and so should the appreciation of the Mexican peso, the research firm said. "We remain comfortable with our view for an easing cycle to begin in the third quarter, and expect more rate cuts than the markets are pricing in this year and next."

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Fecha de publicación: 07/03/2019