Good News (So Far) on Inflation in Mexico

Delia Paredes & Genevieve Signoret

(Hay una versión en español de este artículo aquí.)

The year started with good news about inflation: all its components are within Banco de México’s target range (3% ±1%).

In January 2025, annual inflation declined to 3.6% from 4.2% at the end of 2024. This drop was driven by lower agricultural prices, which pushed non-core inflation down to 3.3% in January, compared with 5.9% in December. Meanwhile, core inflation for the past twelve months held steady at 3.7%, with reduced pressure on service prices.

INPC inflation started the year within Banxico’s target range, sustaining a favorable inflation trend

Consumer price index, annual % change

Source: Inegi.

Core Inflation to Remain Around 3.7% in 2025

We identify two key dynamics within core inflation that explain why its annual rate is likely to stay close to current levels in 2025.

The first one concerns goods prices. Inflation in this category has dropped below 2%—a pace not seen in a decade. It was driven by lower prices for food and other goods, which ended 2024 up 1.3% for the year. This means that the base of comparison for 2025 inflation will be unusually low, hence annual goods inflation rates are apt to rebound.

The second dynamic lies in service prices, where inflation remains near 5% year-over-year but is trending downward. While inflation in “other services” continues to ease due to weaker domestic demand, housing prices have accelerated, reaching their fastest growth rate in 10 years (4% y/y).

Mixed Trends in Core Inflation: goods prices could rebound and services price increases are expected to moderate

Goods prices, annual % change		Service prices, annual % change
Source: Inegi.		Source: Inegi.

Looking ahead, inflation in goods is likely to rise toward 3.5% by late 2025, owing mainly to a low base of comparison. Meanwhile, inflation in services is expected to keep declining as economic activity slows, converging to 4% year-over-year, which is within Banxico’s upper target limit. As a result, core inflation would remain stable at around 3.7%.

 
 
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