Inflation Ends 2025 at Its Best Level Since 2020

Inflation closed 2025 at 3.69%. Throughout the year, inflation dynamics were supported by lower pressures in the agricultural sector, which allowed Banco de México to cut the policy rate by 300 bp over the year.

During the second half of December, inflation posted a -0.02% bw print, surprising to the downside relative to both the consensus (0.08% bw) and our estimate (0.03% bw).

The forecast error was mainly explained by the core component, which came in at 0.04% bw and contributed 5 bp to the total error. Within this component, lower-than-expected pressures were observed in air transportation services (-23.42% bw), contributing 4 bp to the forecast error.

Meanwhile, non-core inflation declined -0.21% bw, in line with our estimate. Within this component, declines in fruit and vegetable prices (-1.61% bw) persisted, supported by improved conditions in the agricultural sector.

As a result, in December headline inflation eased from 3.80% to 3.69%, while core inflation declined from 4.43% to 4.33% and non-core inflation from 1.73% to 1.61%.

Looking ahead to the first quarter of 2026, we anticipate a rebound in inflation driven by changes in taxes on sugary beverages and cigarettes, higher tariffs on imports from countries with which Mexico does not have a trade agreement, and the increase in the minimum wage.

This scenario is consistent with the most recent monetary policy minutes, which point to a wait-and-see stance and open the possibility of revising the inflation forecast at the beginning of the year, allowing for a pause in the ratecutting cycle in the event of an inflation uptick.

In this context, we expect Banco de México to keep the policy rate unchanged during the first half of 2026 and subsequently implement two rate cuts in the second half of the year, taking the rate to 6.50%.