Background on Inflation in Mexico and its Impact
Inflation in Mexico continued to decelerate in July, reaching its lowest level since the end of 2020, according to data released by the National Institute of Statistics and Geography (Inegi).
Key Inflation Figures
- The National Consumer Price Index (INPC) reported a monthly variation of 0.27% in July, resulting in an annual inflation rate of 3.51%.
- This marks the second consecutive month of deceleration and the lowest inflation rate since December 2020, when it stood at 3.15%.
- The July inflation figure is below the projection of analysts consulted by Reuters, who anticipated a 3.53% rate.
- With this data, inflation returns to the Banco de México (Banxico) target range of 3% ±1 percentage point.
Banxico’s Interest Rate Adjustments
Last month, the central bank opted to reduce its interest rate by 50 basis points, setting it at 8%. It is expected that Banxico will further lower the rate by 25 basis points later today.
Subyacent Inflation Above Target
According to the Inegi report details, the subyacent inflation—which Banxico considers for monetary policy decisions—remains above the target.
- The subyacent index, which excludes more volatile items, slightly decelerated from 4.24% to 4.23% annually in July.
- Within this category, the price of goods increased to 4.02%, while services rose by 4.44%.
- Non-subyacent inflation decelerated significantly, dropping from 4.33% in June to 1.14% in July.
- The slowdown in the subyacent index was due to a 0.17% annual increase in agricultural products and a 1.97% rise in energy and government-authorized tariffs, compared to July 2024.
Key Questions and Answers
- What is the current inflation rate in Mexico? The inflation rate in Mexico slowed to 3.51% in July, the lowest since December 2020.
- How does this affect Banxico’s interest rate decisions? With inflation back within the target range, Banxico is expected to continue adjusting interest rates accordingly.
- What is the subyacent inflation and why is it important? The subyacent inflation measures price changes excluding more volatile items. Banxico uses this metric to guide its monetary policy decisions.
- Why did the subyacent inflation decelerate in July? The slowdown was due to a smaller increase in agricultural products and energy tariffs compared to the previous year.
