Bi-weekly headline CPI for the first half of May was 0.09%, substantially above the deflation expected by Bloomberg’s market consensus and our forecast (-0.10% and -0.11%, respectively). However, core inflation came in at 0.16%, in line with expectations and a tad lower than our forecast (0.19%). Within the core component, tradable prices rose by 0.13% 2w/2w, down from 0.25% in the previous fortnight. Services prices rose 0.18% 2w/2w, higher than the previous data (0.01%), due to housing and other services such as leisure. The non-core component decreased by 0.15% 2w/2w due to energy prices, which decreased during the fortnight (-3.33%), posting declines for three consecutive biweekly periods.
In annual terms, headline inflation accelerated to 4.22%, from 3.90% in the second half of April. Core CPI also increased, rising from 3.96% in the previous biweekly figure to 3.97% now, with goods at 3.51% (up from 3.48%) and services at 4.49% (up from 4.51%). In the May 15 statement, Banxico forecasted 3.9% for both headline and core inflation during 2Q25, well below today’s data. Core measures remain under pressure at the margin: core CPI 5.27% 3MMA SAAR (tradables 6.07% and services 4.21%).
Our take: Today’s report reinforces our view that the disinflation process has already occurred, and headline inflation is projected to oscillate around the ceiling of Banxico’s inflation target tolerance range, down from nearly 9% at its peak in 2022. Most of the disinflation came from non-core items, while core goods inflation continues to accelerate at the margin, and core services remain sticky in a still tight labor market scenario. We forecast CPI to end 2025 at 3.9%. Regarding the policy rate, we maintain our call for a 50-bps rate cut in June, down to 8.0%.
