Mexico’s Annual Inflation Returns to Central Bank's Target Range in May, But Concerns Persist

• Mexico’s annual inflation rate decelerated for a second consecutive month in May 2026, returning to the higher end of the central bank’s target range. However, concerns remain around future inflation trends and core price pressures.
• Consumer prices rose 3.94% year-over-year in May 2026, easing from 4.45% in April 2026 and coming in below economists’ forecast of 4.03% in a Reuters poll. This placed inflation back within Banxico’s target range of 3%, plus or minus one percentage point.
• Consumer prices fell 0.21% in May 2026, marking the first monthly decline in two years. The decline was larger than economists expected, as the Reuters poll had forecast a smaller 0.12% month-over-month fall.
• However, underlying price pressures remain a concern. The closely watched core index, which strips out some volatile food and energy prices, rose 0.22% month-over-month, while annual core inflation slowed only slightly to 4.19% from 4.26% in April.
• According to Pantheon Macroeconomics’ Chief Latin America Economist, Andres Abadia, while inflation is moving in the right direction, progress remains uneven, with core services inflation still running above levels consistent with Banxico’s target.
• Banxico recently ended its more than two-year monetary easing cycle, lowering its benchmark interest rate by 25 basis points to 6.50% in a divided decision, amid concerns about inflation risks linked to the U.S. and Israel war on Iran and a sluggish domestic economy.
• While Mexico’s softer headline inflation gives the bank some comfort that price pressures are easing, sticky core and services inflation suggest the central bank is unlikely to rush into further rate cuts. According to Capital Economics, the policy rate is likely to remain at 6.50% in the foreseeable future, despite the larger-than-expected fall in headline inflation.

(Source: Reuters)