Inflation in Mexico once again exceeds Banxico’s target: food and services rise in February
The jump to 4.02% year over year in February reignites the debate over the pace of rate cuts amid pressure in services and food.
Inflation in Mexico moved back outside the target range of the Bank of Mexico (Banxico) in February, after the National Consumer Price Index (INPC) posted a monthly increase of 0.50% and an annual rate of 4.02%, according to figures from INEGI. With this result, the indicator came in above the range consistent with the 3% target +/- one percentage point (2% to 4%), at a time when markets are assessing how quickly monetary policy can be eased without reigniting price pressures.
The move was driven by increases in fresh food and the persistence of pressure in certain services. Among the items with the biggest monthly jumps were tomatoes, potatoes and other tubers, tomatillos, and limes, reflecting the typical volatility of agricultural prices, as well as strains that can arise from seasonal, logistics, and supply factors. At the same time, eating away from home continued to get more expensive: price increases at sandwich shops, small diners, torta stands, taco shops, and restaurants kept pushing the index higher, consistent with services inflation, which tends to cool more slowly.
The core component—watched most closely by Banxico because it excludes more volatile prices—rose 0.46% on the month and 4.50% year over year. Within it, services increased 0.52% month over month and goods rose 0.39%, a mix that suggests inflation inertia has not fully faded. By contrast, there were some offsets: LP household gas, eggs, and chicken posted declines during the month, helping partially temper the INPC’s overall advance.
In the non-core component, prices climbed 0.64% month over month, mainly due to higher agricultural products. This category is typically the most sensitive to short-term shocks, so its path can shift quickly; however, when it coincides with elevated core inflation, the outlook becomes more complicated for monetary policy.
By category, the largest annual increases were seen in alcoholic beverages and tobacco, restaurants and lodging services, education services, and food and non-alcoholic beverages. In addition, the minimum consumption basket—an indicator that tracks 170 essential goods and services—rose 0.52% month over month and 3.84% year over year, a relevant figure for lower-income households given their heavier exposure to food and basic services.
Implications for Banxico, rates, and consumption
The return of headline inflation above the target range reinforces caution around the policy-rate cutting cycle. Even though disinflation has progressed from the peaks seen in recent years, core inflation at 4.50% year over year and pressure in services suggest the decline could be gradual and uneven. In practice, that often translates into data-dependent decisions: if services remain elevated and food prices surprise to the upside again, Banxico could opt for a slower pace of cuts or pauses, aiming to prevent inflation expectations from becoming unanchored. For consumption, the higher cost of eating out and certain staples squeezes household budgets, while high interest rates make credit more expensive, affecting purchases of durable goods and raising financing costs for households and businesses.
Looking ahead, the behavior of fresh food and energy prices will be key for non-core inflation, while trends in wages, rents, and services will largely determine the speed at which core inflation converges. The external environment will also matter: changes in input costs, logistics, and global financial conditions often feed through to goods and expectations with a lag, although the services channel remains primarily domestic.
In sum, February’s data confirm that disinflation is continuing, but with bumps that keep the outlook challenging: food and services are once again setting the tone, and the discussion now centers on how long a restrictive monetary stance must be maintained to cement a return to target.
