Mexico Macro Monitor: Inflation rebounds, Banxico should think twice about relaxing monetary policy in May

MEXICO - In Brief 24 Apr 2025 by Mauricio González

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Annual inflation in the first half of April rebounded due to increases in both core and non-core inflation, erasing the progress made earlier in the year…●Consumer price inflation in the first half of April rose to an annual rate of 3.96%, approaching December 2024's level of 3.99%.●The core inflation component saw a significant increase to 3.9%, while non-core inflation reached 3.95%. The core reading represents a 21-basis-point increase from end-2024 levels.●Of particular concern is the consistent upward trajectory in core inflation since late January, suggesting a concerning trend may be taking hold.Graph 1●This inflationary rebound represents a setback for Mexico's central bank (Banxico), indicating that price pressures remain uncontrolled. The data suggests policymakers should exercise caution in their rate management approach, likely necessitating a pause in rate cuts at their upcoming May 15 meeting.●While Banxico has previously signaled intentions to continue its easing cycle - potentially lowering rates to 8% by year-end - market consensus expects this dovish stance to continue despite inflationary pressures. This outlook is largely driven by growing expectations of economic contraction in 2025, though such growth considerations technically fall outside the central bank's inflation-targeting mandate.Core goods inflation continues its upward trajectory; this upward trend may be caused in part due to the peso's depreciation that began in the second half of 2024...●Core goods inflation rose further to 3.28% in the first half of April, now standing 78 basis points above end-2024 levels. Meanwhile, services inflation increased to 4.6%, representing a 35-basis-point...