Mexico’s annual inflation rate in the first half of November exceeded expectations, highlighting the persistent struggle authorities confront as underlying pricing pressures remain stubborn.
Official statistics released on Monday showed headline inflation at 3.61%, slightly higher than the 3.56% forecast by Reuters economists.
The figure focuses renewed emphasis on the variables that continue to affect Mexico’s price landscape, particularly when the economy shows symptoms of deterioration.
While headline inflation stays near the central bank’s goal range, the continuance of core inflation complicates expectations for monetary policy in the coming months.
Core inflation remains the central concern
The core price index, which experts and policymakers constantly follow to get a better sense of medium- and long-term inflation patterns, remains elevated.
The indicator increased 4.32% in the year to early November, up from 4.24% in the previous similar period.
This tenacity is noteworthy because core inflation eliminates volatile food and energy components, making it an important statistic for determining the direction of broader price movements.
In a remark on X, Banco Base economic analysis director Gabriela Siller emphasised the hazards associated with this metric, noting that “core inflation, which determines the trajectory of headline inflation in the medium and long term, shows no clear signs of slowing down.”
Even as the central bank examines the declining pace of Mexico’s economy, which is projected to reduce inflationary pressures, policymakers remain cautious.
Underlying pricing dynamics continue to throw doubt on the rate at which inflation can sustainably return to the bank’s aim.
Market expectations and monetary policy outlook
Although core inflation does remain sticky, Citi views the potential for a small policy move in December by the central bank.
Analysts forecast a 25-basis-point reduction to Mexico’s benchmark interest rate, as the bank anticipates.
But what happens after December is much less clear. According to Citi’s analysts, however, ”The rate cuts afterwards will depend much more on the data,” meaning that future monetary policy responses will rely heavily on incoming inflation data and the trajectory of the underlying price trend.
The central bank has stated multiple times that the trajectory of monetary policy hinges on convergence towards its inflation target.
With the mix of inflation, headline cooling slightly but core impulse sticking, analysts expect policymakers to be cautious.
Monthly data shows temporary downward pressure
When compared to the previous month, core inflation was up 0.4%, a sign that prices are moving in non-volatile areas, yet this is not causing much overflow.
Citi mentioned that part of this moderation was connected with discounting related to El Buen Fin – a nationwide buying promotion in Mexico between November 13–17.
The event usually generates the widely-spread retail discounts that drive consumer spending, but can lead to some prices facing temporary downward pressure. Citi acknowledged this dynamic, indicating such a discount campaign added “downside pressure across core inflation.”
These campaigns can be successful in suppressing inflation numbers temporarily, but as a rule, they do not change bigger structural trends.
Core inflation, which has proven until the end of last year to be persistent, suggests more entrenched pressures which are not going to disappear as soon as some short-term promotional activity dies down.
Economic weakness and the path forward
Members of Mexico’s central bank board have suggested that the country’s current economic downturn will help to progressively reduce inflation.
Slower economic activity tends to diminish demand-driven price pressures, which could provide respite over time.
However, the most recent data paint a more nuanced picture: while headline inflation is near projections and essentially constant, core inflation’s resistance to a clear downward trend remains a significant impediment.
The disparity between these two metrics will be critical in determining monetary policy decisions as the year ends and 2025 begins.
With headline inflation slightly higher than expected and core inflation rising, markets and policymakers will look to incoming data to see if inflationary dynamics are easing or if Mexico’s economy faces a longer-term struggle.
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