Inflation at the end of 2025 stood at 3.7%, below market expectations but slightly above the projections of the Bank of Mexico (Banxico). It is worth remembering that pressures began in 2021, when the annual inflation rate rose from 3.1 in December 2020 to 7.3% and 7.8% in the following two years. It was not until 2023 that it began to decline to 4.6%, and last year it closed at 4.2%. This year's data was favored mainly by the reduction in the agricultural sector, which was a point of tension at the beginning of the year: particularly the fruits and vegetables category fell by 0.53% in the monthly comparison and by 5.62% compared to December 2024. In detail, the data published this Thursday by INEGI shows that the monthly inflation rate stood at 0.28%. Although the data reveals lower inflationary pressures since the pandemic, it still poses significant challenges for the central bank's target by the end of this year. The Bank of Mexico has defended throughout the year the cycle of interest rate cuts, pointing out that inflation has reduced from its highest episodes during the pandemic. The decrease is due to a 0.16% reduction in the non-underlying component, also due to lower prices in livestock products and the deceleration of energy products. On an annual basis, it is observed that underlying inflation fell to 4.33%, with decreases in goods and services; however, it remains above the range tolerated by Banxico; on the other hand, non-underlying inflation slowed to 1.61% annually, staying below 2% in 5 of the last 6 months. For analysts, the dynamics shown by the underlying component, which resists falling below 4%, remains a warning signal that casts doubt on achieving the goal of reducing inflation to 3% by the end of the year as Banxico projects. Analysts rule out 3% inflation in 2026 and anticipate a more moderate Banxico. Additionally, Banamex analysts anticipate that the upward trend will resume in January as a consequence of the effects of the tax and tariff increases that came into effect on January 1, which would mainly impact the goods component (which, after showing an upward trend in 2025, had stabilized), as well as labor costs. Although, on the other hand, they also estimate that throughout the year these pressures will be partially offset by the effects of the appreciation of the exchange rate, the relatively low producer price inflation, and the modest economic growth that prevails. In this context, the consensus carried out by Citi among private sector specialists estimates that general inflation will stand at 3.8% by the end of this year and at least two interest rate cuts by the central bank, which could begin in May.
