The market expects a pause to observe inflation behavior due to tax changes this year, which also include tariffs for countries with which Mexico does not have trade agreements, such as China. According to Deputy Governor Gabriel Cuadra, this element could be reflected in inflation in the coming months, so he spoke in favor of a pause this February. The first impacts of the tax changes approved for this year are beginning to be felt in inflation, which during the first half of January rose to 3.7% on an annual basis, very close to the limit tolerated by the Bank of Mexico (Banxico). At the start of the year, the price pressures are mainly explained by the increase in the prices of products such as cigarettes and sugary drinks, products that had an upward adjustment in the Special Tax on Production and Services (IEPS) charged upon purchase, which the government assured would be for health reasons. According to data published this Thursday by INEGI, cigarettes show the biggest price increase this half-month with a rise of 12.22%, followed by packaged soft drinks with an increase of 3.97% compared to the previous half-month. In addition to these increases, food-related services such as lunch counters, fondas, tortillerias and taquerÃas, and restaurants also pressured inflation this half-month. Housing and hair products also figure among the most affected by price pressures. All these components of the underlying inflation, which on an annual basis rose to 4.47%, remaining above the general rate and above the central bank's target of 3%. It is worth remembering that this item is key to understanding inflationary behavior in the medium and long term. Deputy Governor Cuadra supports a pause in interest rate cuts due to tariffs on China. As for non-underlying inflation, it stood at 1.43%, with a 2.90% drop in agricultural products and 0.85% in energy products compared to the first half of January last year. In the half-monthly comparison, general inflation advanced 0.31%, underlying inflation did so by 0.43%, and non-underlying inflation did so by 0.12%. The data are released two weeks before the central bank's meeting.
