Inflation during the first half of February saw an unexpected surge, reaching 3.9% annually, driven by an unforeseen increase in fruit and vegetable prices. According to data published Tuesday morning by the National Institute of Statistics and Geography (INEGI), inflation stood at 0.25% compared to the previous two-week period. This uptick was not related to fiscal measures such as the IEPS tax or tariffs on countries without trade agreements, as underlying inflation was actually below estimates, at 4.52% annually and 0.22% for the period. However, it has now accumulated nine months above 4%, exceeding the Bank of Mexico's (Banxico) target. It is worth noting that despite the sluggish economic activity and in line with rising labor costs, services still show a variation well above their historical average, reflecting medium and long-term pressures. Conversely, the surprise came from non-underlying inflation, which stood at 1.92% annually and advanced 0.32% for the period. With this result, the overall annual inflation was 3.92%. Analysts from Banorte highlighted that since today's surprise was mainly due to the non-underlying component, it could be a relief for some central bank officials, leading them to project that Banxico will cut rates by 25 basis points again at its next meeting on March 26. In contrast, the BX+ analysis warns of a still complex inflationary landscape that will push the board led by Victoria Rodríguez to extend the pause for several more months. Heath confirmed that Banxico is considering interest rate cuts for March, despite pressures on the inflation target. 'The Bank of Mexico's monetary policy is in neutral territory, so we believe the central bank has very limited maneuvering room. Underlying inflation remains high despite weak economic momentum, and its outlook has not improved,' they said. Analysts at Monex took a similar stance, arguing that if the upward trend in the agricultural sector continues, it will add an additional challenge to the inflationary picture, considering the dynamics of underlying inflation, so they also estimate the pause will be maintained this March. Within the sector, the rise in fruits and vegetables stands out, with this category advancing 2.10% compared to the immediate previous period and 5.61% annually. Notable increases were seen in tomatoes, potatoes, green tomatoes, and limes. The data comes just weeks before the central bank paused its rate-cutting cycle, which is set at 7%, but with a more dovish message that opens the door to resuming cuts in March. The central bank defended its monetary policy tone at the beginning of February, stating that the pressures on inflation in January were temporary and that weak economic activity would help mitigate some shocks. However, the minutes also revealed a debate on the temporality of this pause, in addition to the dissenting vote from Deputy Governor Jonathan Heath, which is reflected in the debate among analysts about the central bank's next decision. In the first half of February 2026, the National Consumer Price Index (INPC) reached a level of 144.064, representing an increase of 0.25% from the previous period.
