Mexico Inflation Jumps to 4.63%, Complicating Rate Cut

Mexico inflation hit its highest level in nine months just two days before the central bank must decide whether to resume cutting interest rates. INEGI reported Tuesday that consumer prices rose 4.63% annually in the first half of March — a sharp acceleration from 4.02% in late February that caught markets off guard, The Rio Times, the Latin American financial news outlet, reports.

Food Prices Drive the Mexico Inflation Surge

The fortnightly price increase of 0.62% was nearly double the 0.37% that analysts had forecast and the highest for an early-March reading in at least a decade. The culprit was food: tomato prices exploded 32% in two weeks, while fruit and vegetable costs overall jumped 8.3%. Chicken, potatoes, and squash also posted sharp increases.

The non-core price index, which captures volatile items like fresh produce and energy, surged 1.96% in the fortnight and 5.18% on an annual basis. Core inflation, which strips out those swings, held relatively steady at 4.46% — marginally below the 4.48% in late February but still well above the central bank’s 3% target.

Food and beverage costs climbed 7.42% annually, the fastest pace among all spending categories. Airfares jumped 21.9% in the fortnight, while electricity prices rose 2.2%. The only category posting annual deflation was telecommunications, where internet and phone packages fell 0.92%.

Thursday’s Rate Decision Splits Analysts

Banxico paused its nearly two-year easing cycle in February to assess the impact of new U.S. tariffs and a domestic tax increase that took effect at the start of the year. Thursday’s meeting is now the most closely watched in months.

Of 29 analysts surveyed by Bloomberg, 15 expect the rate to remain at 7% while 14 project a 25 basis-point cut to 6.75%. The near-even split reflects genuine uncertainty about whether Banxico prioritizes slowing growth or accelerating prices.

The inflation print complicates the case for cutting. Banxico has already pushed back its timeline for returning inflation to target from the third quarter of 2026 to the second quarter of 2027.

JP Morgan argues the central bank will likely cut regardless, noting that the 2022 oil price shock was far more inflationary yet did not stop Banxico from eventually easing. Trade tensions in 2025 were also significant, the bank noted, and Banxico still managed to bring rates down steadily to 7%.

A Stagflation Warning for Mexico Inflation Watchers

The data arrives alongside Monday’s economic activity report showing a 0.9% contraction in January, creating a textbook policy dilemma: the economy is shrinking while prices accelerate. Manufacturing employment has fallen for 35 straight months and the USMCA review looming in July adds a layer of trade uncertainty.

The minimum consumption basket — the set of basic goods tracked by INEGI and social welfare agency CONEVAL to measure living standards for the poorest households — rose 0.69% in the fortnight and 4.61% annually. In the same period last year, that basket rose just 0.07%. For lower-income Mexicans, the inflation being felt at the market is far worse than the headline number suggests.

Whatever Banxico decides Thursday, the broader picture is clear: Mexico’s economy is caught between external trade headwinds, declining industrial output, and prices that refuse to cooperate. The peso weakened against the dollar immediately after the inflation release, reflecting the market’s recognition that easy monetary policy just became harder to justify.