Mexico’s Inflation Surprise Puts Central Bank’s Easing Path At Risk

Mexico’s inflation scare is not over yet. Prices in the first half of November rose 3.61% from a year earlier, up from about 3.5% at the end of October and above market expectations of 3.54%.

Core inflation, which leaves out volatile food and fuel, stayed stuck at 4.32%, well above the central bank’s 3% target midpoint. The sources of pressure are very concrete. The end of a summer electricity subsidy in 11 cities pushed power bills higher.

Several regions lifted public transport fares. Low-cost eateries and street-food style venues raised prices, as did some professional services. Food inflation has been mixed, but items such as tomatoes and meals outside the home added to the squeeze.

Non-core inflation is still low, near 1.3%, yet it no longer drags headline inflation down as strongly as before. This all comes as the economy loses speed. In the third quarter, Mexico’s GDP fell 0.3% from the previous quarter.

Industrial output, especially manufacturing, dropped around 1.5%, and services barely grew. Compared with a year earlier, total output is slightly lower, giving the sense of an economy that is cooling before inflation is fully under control.

Banxico Cuts Again, but Inflation Risks Still Loom

Banxico cut its key interest rate on 6 November by 0.25 percentage points to 7.25%, its eleventh consecutive reduction and the lowest level since mid-2022. One board member, Jonathan Heath, opposed the move, arguing that stubborn core inflation demands more caution.

The majority still hints at another small cut in December, but now insists that every step will depend on incoming data. For households, the combination is uncomfortable.

Electricity, buses and metros, and casual meals claim a bigger slice of paychecks, while borrowing costs have fallen only gradually. Savers still enjoy positive real interest rates, but the margin is shrinking, which could matter for the peso and foreign investment.

Analysts warn that planned tax increases and a likely double-digit minimum wage hike next year may push inflation closer to 4.5% in early 2026, forcing the central bank to prove its discipline all over again.

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