Mexico inflation accelerates to 4.63% in early March: here's why

Mexico’s inflation accelerated more sharply than expected in the first half of March, complicating the outlook for monetary policy just days before the central bank’s rate decision, as global risks tied to the Middle East conflict add further uncertainty.

Inflation rises above forecasts

Consumer prices in Latin America’s second-largest economy rose 4.63% year-on-year in early March, according to data from Mexico’s national statistics agency. 

The reading exceeded expectations from nearly all analysts surveyed and marked a notable increase from late February’s 4.13% print. 

Separate data also showed inflation rising from 3.92% in the first half of February.

The latest figure represents the highest level since late 2024 and underscores renewed price pressures at a time when policymakers had been expecting a gradual cooling trend.

Core inflation, which strips out volatile food and energy components, edged lower to 4.46%, compared with 4.48% in the previous period and slightly below consensus estimates. 

However, it remains above the central bank’s target range of 3% plus or minus one percentage point.

On a month-on-month basis, consumer prices rose 0.62% in the first half of March, significantly exceeding expectations of a 0.37% increase.

Food and services prices were key contributors to the increase. 

Tomato prices surged 32.17%, while airfares jumped 21.86%. 

In contrast, egg prices declined 1.33%, and costs for internet, telephone, and pay-TV services fell 3.47%.

Rate decision hangs in balance

The inflation data comes ahead of the Bank of Mexico’s policy meeting, where officials face a difficult decision on interest rates. 

The central bank, known as Banxico, paused its easing cycle last month after nearly two years of rate cuts.

Analysts remain divided on the outcome. 

Of 29 economists surveyed by Bloomberg, 15 expect policymakers to hold the benchmark rate at 7%, while 14 forecast a quarter-point cut to 6.75%.

Economists say the latest data narrows the central bank’s room to ease policy. 

“These figures confirm that the central bank has very little room to cut interest rates. Inflation has risen, albeit due to temporary factors, even though the economy is showing signs of fatigue,” said Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, in a Bloomberg report.

Recent economic data also point to weakening growth. 

Mexico’s economic activity declined 0.3% in January compared with a year earlier, a sharp reversal from December’s 3.26% increase.

Global risks add to inflation pressures

External factors are further complicating the outlook. 

The ongoing conflict in the Middle East has pushed oil prices higher, adding to inflationary risks despite limited direct trade exposure for Mexico.

The central bank has already pushed back its timeline for bringing inflation within target, now expecting it to reach the 3% goal range by the second quarter of 2027, later than previously projected.