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(Bloomberg) -- Mexican central bank Deputy Governor Jonathan Heath said it’s uncertain how soon food price pressures will cool and bring policymakers relief on non-core inflation as they mull new interest rate cuts.

Inflation remains sticky largely due to sharp price spikes of around 100% in six products — including tomatoes, onions and lemons — rather than because of generalized pressures, Heath said in an interview. While policymakers expect those costs to cool, the downward trend will be uneven, he said.

“Non-core inflation has been rising a lot lately,” Heath said at a lunch to mark the 20th anniversary of the business environment indicator of the Mexican Institute of Financial Executives, an organization he helped to establish. “Most likely it is already going to slow. The problem is that we don’t know when, or by how much.”

Banxico, as the central bank is known, cut borrowing costs by a quarter percentage-point to 10.75% in a split decision last month, and said it would consider further reductions, even with consumer price rises still well above the 3% target. While core inflation has slowed consistently — representing one of policymakers’ main arguments for easing — that trend is beginning to wane due to increases in service costs, Heath said.

“That’s the challenge we’re facing right now, to break the persistence in services,” Heath said. “From the moment there is evidence that persistence is breaking, I think we can smile. But we’re not there yet.”

Annual inflation slowed to 5.2% in the first two weeks of August, from 5.6% a month earlier, according to the national statistics institute.

Growth Downturn

For members of the Mexican Institute of Financial Executives, there’s no clear evidence inflation will continue to slow toward its target even though the domestic economy is in a marked slowdown.

The institute known as IMEF, which gathers members of the financial sector, trimmed its 2024 economic growth forecast to 1.7% in August from 2% in July, according to the group’s president, Jose Domingo Figueroa.

Mexico’s downturn is being exacerbated by a weaker US economy, which is hitting exports, said Victor Manuel Herrera, the president of IMEF’s national committee of economic studies.

A drop in foreign direct investment also indicates new risks for the economy, Herrera said.

“If we look at new investment alone, last year it was $4.8 billion during the whole year. In the first half of this year it was $900 million, so there is a clear slowdown.”

As for inflation, challenges include a recent drought which stoked prices and forced Mexico to import a large amount of food, Herrera said.

Government Reforms

Going forward, President-elect Claudia Sheinbaum must define the route to lower Mexico’s fiscal deficit to her goal of between 3% and 3.5% of GDP, Herrera said.

“It’s not clear how the government intends to lower the deficit from 6% to 3%,” Herrera said. “It’s possible, but it has a political cost, since most of the increase in the deficit came from subsidies and public works.”

In the short term, there could be a change in Mexico’s sovereign credit rating, “either with a negative outlook or with a downgrade,” Herrera said.

Sheinbaum must also calm investors’ concerns about outgoing President Andres Manuel Lopez Obrador’s constitutional reform proposals, especially the overhaul of the judicial system that was approved in the lower house early Wednesday.

Regarding the judicial plan and the bill seeking to eliminate autonomous regulatory bodies, Figueroa said both “generate a lack of confidence and security for investors.”

“The division of powers is convenient for the best decision making,” Figueroa said. “The election of judges can be politicized and thus the new judges’ decisions could lose independence and transparency,” he said.