Inflation 1h – Jan

First-half January inflation was 0.31% bw, driven by the increase in taxes on sugar-sweetened beverages and cigarettes. With this information, annual inflation stands at 3.77%.

The figure surprised to the downside against both our expectation (0.51% bw) and the consensus (0.40% bw). Of the 21 basis points of our forecast error, 11 bps correspond to the non-core component, while 9 bps correspond to the core component.

Within the non-core component (-0.12% bw vs. 0.35% bw estimated), the decline in livestock products stood out (-0.38% bw vs. 0.28% bw estimated), following a larger-than-expected drop in egg prices (-3.95% bw) and lower pressure on chicken prices (0.35% bw). Likewise, fruits and vegetables recorded an advance of 0.09% bw, below the 1.22% bw estimated through our price monitoring.

Within the core component, we observed lower-than-estimated pressures on the prices of bottled soft drinks (3.97% bw vs. 7.35% bw estimated) and cigarettes (12.22% bw vs. 18.00% bw estimated). It is worth noting that during the first half of January, the IEPS (excise tax) increases came into effect for sugar-sweetened beverages (rising from $1.6451 to $3.0818 pesos per liter) and the ad-valorem tax for processed tobacco (rising from 160% to 200%), which boosted the prices of these products.

With this information, annual headline inflation moved from 3.66% to 3.77%, core inflation from 4.31% to 4.47%, and non-core inflation from 1.51% to 1.43%.

In this context, we maintain our expectation that Banco de México will leave its reference rate unchanged at the upcoming meeting on February 5. This is in line with the most recent monetary policy minutes, which describe a "wait and see" stance regarding the effects of the hike in certain taxes, the minimum wage increase, and the implementation of tariffs on countries with which Mexico does not have trade agreements.