Banxico, Mexico’s central bank, has forecasted greater inflationary pressures in food, services, and housing for the remainder of 2023 and the first half of 2026. This translates to a reduced purchasing power for Mexican households.
Inflation measures the increase in prices over a specific period. As explained by the National Commission for the Protection and Defense of Users of Financial Services (Condusef), “in simpler terms, money becomes less valuable, and you need more of it to buy the same things.”
Types of Inflation
Inflation is categorized into two types: underlying and non-underlying. The former includes food, beverages, tobacco, non-food goods, services, and housing. This indicator is valuable as it comprises less volatile or more stable generic items, providing insights into price trends over the medium term and serving as a reference for fiscal and monetary policy instrumentation.
The non-underlying component consists of unprocessed food, energy, government-authorized tariffs, and services whose prices are not directly influenced by market conditions but are highly affected by external factors like weather or government regulations.
Higher Pressure Anticipated
In its recent monetary policy announcement, Banxico adjusted its projections for underlying inflation—a crucial indicator for fiscal and monetary policy and theoretically more stable.
For Q4 2023, Banxico increased its expectation from 3.7% to 4%. For Q1 2026, it raised the projection from 3.5% to 3.6%, and for Q2 2026, from 3.1% to 3.2%. The central bank acknowledged that the balance of risks regarding the inflation trajectory in the forecast horizon maintains an upward bias, though less pronounced than between 2021 and 2024.
Banxico also estimated that general inflation would converge to the 3% target by the third quarter of 2026.
While general inflation is expected to improve, the underlying component—which typically has a more significant impact on household budgets—continues to rise. Inflation accelerated during the first half of September, and underlying inflation remains under strong pressure.
Gabriela Siller, Chief Economist at Banco Base, commented: “Banxico lowered its general inflation forecast but increased the underlying one, indicating that the general inflation reduction is due to lower non-underlying inflation, where prices are more volatile and not influenced by monetary policy.”
Identified Risks
Banxico’s projections are subject to the following risks:
- Upward: depreciation of the Mexican peso, disruptions from geopolitical conflicts or trade policies, persistence of underlying inflation, cost pressures, and climate impacts.
- Policy changes by the new U.S. administration have added uncertainty to forecasts, potentially implying inflationary pressures.
