Mexico’s economy received an unexpected boost as inflation dropped to 3.59% in January 2025, marking its lowest level since January 2021.
The National Institute of Statistics and Geography (INEGI) released its latest Consumer Price Index (CPI) report, revealing a 0.29% monthly increase, the lowest recorded for January since 2019.
This decline marks the third consecutive month of inflation slowdown, aligning with Mexico’s central bank’s strategy of lowering interest rates.
The Bank of Mexico (Banxico) recently reduced its benchmark interest rate to 9.50%, marking the fifth consecutive rate cut aimed at controlling inflation while keeping monetary policy tight.
Why Is Inflation Slowing Down in Mexico?
Several factors contributed to this downward trend. According to financial experts, the declining costs of regulated goods and government-controlled tariffs played a crucial role.
- The non-core inflation rate—which includes energy prices and government-regulated goods—dropped significantly from 5.95% to 3.34% on an annual basis.
- The core inflation rate, which excludes volatile food and energy prices, remained steady at 3.66%, slightly higher than December’s 3.65%.
While the core inflation rate has been rising slightly, experts believe that lower energy prices and reduced transportation costs have helped stabilize overall inflation levels.
Which Prices Dropped the Most?
The slowdown in inflation is partly due to the significant price drops in certain consumer goods and services. The biggest price reductions recorded in January 2025 include:
- Airline tickets, which saw a 38.6% decline in prices.
- Papayas, which experienced a 16.5% price drop due to seasonal surpluses.
- Tomatoes, which became 15.5% cheaper, reflecting a shift in supply chain dynamics.
These price adjustments helped offset rising costs in other areas, leading to an overall decrease in inflation.
Mexico’s Economic Forecast: What’s Next?
Despite the positive inflation numbers, economic analysts remain cautious about the coming months. Gabriela Siller, Director of Economic Analysis at Grupo Base, warns that potential risks could drive inflation back up in 2025.
Key risk factors to watch:
- Global energy prices: Any spike in oil and gas prices could reverse gains made in controlling inflation.
- Monetary policy adjustments: While Banxico’s rate cuts have helped, further reductions could impact economic stability.
- Unpredictable food supply chains: Climate conditions and agricultural productivity could affect food prices, particularly in Mexico’s produce sector.
Bank of Mexico’s Strategy for Inflation Control
The Bank of Mexico’s recent interest rate adjustments reflect a cautious but optimistic approach to economic stabilization. By gradually lowering rates, the central bank aims to:
- Maintain economic growth while preventing excessive inflationary pressure.
- Support consumer purchasing power by keeping price increases under control.
- Strengthen financial confidence in Mexico’s markets.
While inflation remains below analyst expectations, continued macroeconomic adjustments will be necessary to maintain stability throughout 2025.
Final Thoughts: A Positive Outlook With Challenges Ahead
Mexico’s inflation drop to 3.59% in January 2025 is a welcome relief for consumers and businesses alike.
The decline marks a significant improvement from previous years, highlighting the impact of monetary policy and economic adjustments.
However, economic uncertainty remains, with global factors and domestic policy changes playing crucial roles in shaping Mexico’s inflation trajectory for the rest of the year.
For now, lower transportation costs, reduced food prices, and interest rate adjustments signal a positive start to 2025, but careful economic monitoring will be essential to maintain this progress.
