Inflation in Mexico rebounded to 3.9% in the first half of February, challenging the Bank of Mexico (Banxico) in its goal to reach 3%. In February, inflation surprised the market, rising to 4.02% from 3.79% in January, breaking out of a seven-month range within the Bank of Mexico's tolerance band of plus or minus one percentage point around its 3.0% target. The increase was mainly due to a surge in the prices of fruits and vegetables, which climbed 5% compared to January and 9.88% year-on-year. Consequently, non-core inflation saw a monthly advance of 0.64% and a year-on-year increase of 2.44%, according to Banxico data. Furthermore, core inflation continues to show resistance to decreasing: in February, it stood at 0.46% compared to the previous month, almost in line with its average for the last fifteen years for the same period (+0.47%). On a year-on-year basis, it was at 4.50%, with no significant change from January's 4.52%, which represented its highest level since March 2024. Specialists also warn that geopolitical pressures from the conflict in the Middle East, threatening a global energy crisis, could be factored into the next reading. The recent trend of the exchange rate, which is moving towards 18 pesos per dollar amid geopolitical tensions, is also being closely watched. Banamex specialists add that core inflation is likely to remain pressured due to a stronger economic recovery this year and recently implemented fiscal measures, including an increase in the IEPS tax and the imposition of tariffs on countries with which Mexico does not have free trade agreements. For now, signals from the central bank point to a likely interest rate cut this March, reflected in the analyst consensus conducted monthly by Citi, where 18 out of 35 surveyed analysts expect a 25-basis-point cut, while 15 anticipate it will be in May, reflecting a high division due to the current context.
