(Bloomberg) -- Mexican inflation slowed more than expected in May with policymakers signaling an extended period of restrictive monetary policy after their record hiking cycle.

Consumer prices rose 5.84% in May from a year earlier, from 6.25% in April, the national statistics institute said Thursday. That was lower than the 5.88% median estimate of economists surveyed by Bloomberg.

Prices fell 0.22% from the previous month. Annual core inflation, which excludes the most volatile items, slowed to 7.39% from 7.67%. 

The slowdown was led by energy, including cooking gas, as well as fruit and vegetable prices. 

“Inflation expectations are going to start to improve and thus the central bank will have no solid arguments for further hikes,” said Alberto Rojas, senior economist for emerging markets at Credit Suisse Group AG. 

Inflation in services remains sticky, amid pressure caused by higher wages. The downward trend will continue to consolidate, while the central bank maintains its restrictive stance over the coming months, said Gabriela Siller, director of economic analysis at Grupo Financiero Base.

Banxico, as the central bank is known, halted its steepest-ever campaign of monetary tightening last month, holding its key rate at 11.25%. Borrowing costs are now at their highest level since the bank started targeting inflation in 2008. 

Read more: Banxico to Keep 11.25% Rate for at Least Next Two Meetings

Governor Victoria Rodriguez hinted last week that the central bank will hold interest rates at a record-high for at least the next two meetings before beginning to consider easing. The bank targets inflation of 3%, plus or minus one percentage point. 

What Bloomberg Economics Says

We think the first cut will come in the fourth quarter, when slower inflation and inflation expectations, more moderate growth and lingering economic slack give policymakers more flexibility to avoid unnecessary tightening in real terms.

— Felipe Hernandez, Latin America economist

— Click here for full report 

Read More: Banxico Signals a Long Period of Tight Money to Tame Inflation

Last week, the central bank cut its projections for consumer price increases to 4.7% by the end of 2023, from 4.9% in its March publication. 

--With assistance from Rafael Gayol.

(Updates with drivers in fourth paragraph, analyst quotes starting in fifth paragraph)

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