Mexico’s annual inflation eased to 3.69% in early January, coming in below expectations and extending the downward trend from December’s 3.99% reading.
Core inflation held steady at 3.72%. A notable 2.67% drop in fresh produce prices helped offset higher energy costs, supporting the overall moderation in consumer-price growth.
Following four consecutive 25 basis-point reductions that brought the policy rate to 10%, Banco de México faces a delicate choice: continue its cautious, gradual easing or move more aggressively with larger cuts. The central bank’s deliberation reflects a balancing act between encouraging growth and guarding against inflationary risks.
Complicating the outlook are potential U.S. tariffs and other external headwinds that could influence Mexico’s economic momentum. Market participants and analysts remain divided about the size of the next rate move at the February 6 policymaking meeting.
A recent Citi survey of 30 economists found 17 favoring a quarter-point cut that would lower the rate to 9.75%, while 13 expect a half-point reduction to 9.5%. The split illustrates uncertainty about the appropriate pace of easing amid the mixed signals from price and growth indicators.
The drop in headline inflation was driven largely by food categories, particularly fruits and vegetables, which tend to be volatile and responsive to seasonal supply conditions. In contrast, energy prices continued to put upward pressure on the index, reflecting global commodity dynamics and domestic pass-through effects.
With core measures stable, the central bank may focus on whether disinflation is broad-based and durable. If future data show continued declines in services inflation and wages remain contained, policymakers could feel more comfortable accelerating cuts. If, however, energy or other components reassert upward pressure, a more cautious stance may prevail.
Investors will also watch incoming economic indicators — retail sales, industrial output, and labor market data — for signs that growth can pick up without rekindling inflation. The near-term policy path will depend on this evolving mix of domestic data and international developments.
For now, the modest decline in inflation provides some policy flexibility for Banxico, but the split among economists underscores that the next step on February 6 is far from certain.
