Mexico Macro Monitor: Consumer inflation is not improving and producer prices risk a spillover on consumer prices

MEXICO - In Brief 09 Apr 2025 by Mauricio González
March inflation edged up slightly on non-core pressures, while core inflation's six-month stagnation raises doubts about monetary easing March consumer inflation rose slightly to 3.8% year-over-year, compared to 3.77% in February. The increase was driven by the non-core component, which reached 4.16% vs. 4.08% the previous month. Core inflation came in at 3.64% year-over-year, nearly unchanged from February’s 3.65%. This marks six months with no progress in this component, which peaked at 3.8% in October 2024.                                                     Graph 1 Source: Data FxRates® and Banxico, Analysis GEA Grupo de Economistas y Asociados Banxico has signaled its intention to continue cutting interest rates, arguing that the premium over expected inflation is too high and that the economy has slowed significantly (though the latter falls outside its mandate). However, the persistence of stubborn core inflation should give the central bank pause ahead of its next rate decision on May 15. There is a risk of a systematic rebound in consumer inflation, fueled largely by rising producer prices (analyzed later)—which, in turn, are being impacted by exchange rate weakness. Producer inflation slowed but remains significantly high, risking spillover to consumer prices Producer Price Inflation (PPI), excluding oil and including services, declined to 7.34% in March from February's 7.89%. This reduction was primarily driven by agricultural prices, where growth slowed sharply to 6.68% (vs. 11.1% in February). However, concerns persist: Industrial sector PPI remained elevated at 8.62%, down slightly from 8.9% in February but still far above August 2024’s 4.9% when the peso...

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