Mexico’s yearly inflation rate accelerated in September, although slightly less than economists had expected, according to official data released on Thursday.
Consumer prices rose 3.76% in the twelve months to September, according to the national statistics agency, INEGI, which is below the annual consumer price increase of 3.79% predicted in a Reuters poll of economists.
It came after a 3.57% year-on-year increase in August.
The latest data is the third month in a row inflation has been within the central bank’s target band of 3% plus or minus one percentage point, suggesting domestic price pressures are largely contained despite concerns over global economic headwinds.
Support for continued rate cuts
The underlying inflation trend has further supported expectations that the Bank of Mexico, or Banxico, will maintain its ongoing cycle of monetary easing.
For the 10th consecutive time, the central bank reduced its benchmark rate last month to 7.5%, the lowest level since 2022, reducing the cost of borrowing.
Current conditions, the analysts added, support their current forecast of a 7.00% benchmark rate by end-2025 and 6.50% in 2026, implying expectation for inflationary pressure in the near term to remain constrained.
The data release will come as policymakers deliberate how soon to keep cutting rates without jeopardising efforts to entrench inflation expectations.
Moderate inflation combined with sluggish growth has provided a tightrope for Banxico to walk as it tries to provide economic stimulus without reigniting consumer prices.
Monthly price gains driven by education costs
According to INEGI’s non-seasonally adjusted data, consumer prices climbed 0.23% month on month in September, somewhat below market estimates.
Economists attributed much of the increase to a strong seasonal spike in education prices, which witnessed their greatest monthly hike since 2008, according to a Citi Banamex note.
The increase in education-related costs is a common seasonal phenomenon associated with the beginning of the new academic year.
However, the extent of the increase this year was considerable, making it a significant contributor to the overall monthly inflation rate.
Core inflation remains sticky
The core inflation index, which excludes volatile food and energy costs, rose 0.33% in September, roughly matching estimates of a 0.32% gain.
Despite the little discrepancy, economists cautioned that continued core inflation could impact the timing and severity of Banxico’s future decisions.
While headline inflation remains well under goal, the stickiness of core inflation suggests that certain underlying price pressures persist in sectors less impacted by temporary or external causes.
This is a critical priority for the central bank as it assesses the viability of its easing cycle.
Outlook and policy challenges
The path of Mexican inflation remains an encouraging sign for a timid monetary-policy environment.
This incremental easing strategy from the central bank seems to be striking a balance between the need to provide support and the broader caution against inflation risks.
Nevertheless, analysts warned that external risk factors still loom and global trade tensions, energy prices, and global demand slowdown may reverse the headwinds of the Mexican economy.
As a result, the adjusted inflation rate may have an impact on consumer prices, putting the strength of Banxico’s inflation-targeting mechanism to the test in the coming months.
In the meantime, the September data support the view that Mexico’s inflation dynamics remain well-behaved, allowing continued monetary relaxation as policymakers grapple with a delicate external environment.
Given the outlook, potential for Banxico to ease additional measures where stable inflation remains part of the framework for a gradual recovery in domestic demand.
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