MEXICO – Electricity Subsidies Ease Non Core, Core Improves at the Margin

Bi‑weekly headline CPI for the first half of April rose 0.11%, above the Bloomberg median (0.08%) but closer to our forecast (0.14%). Core inflation printed at 0.18%, marginally above both consensus and our forecast (0.17%). Within the core basket, tradables increased 0.25% bi‑weekly. Food prices rose a modest 0.11%, while non‑food tradables gained 0.38%, driven mainly by transportation services, pharmaceuticals, and cleaning products. Core services advanced 0.12%, with housing up 0.18% and other services 0.08%. Food‑away‑from‑home prices continued to rise, although this was partially offset by softer hotel and transportation prices. Non‑core CPI registered ‑0.13%, reversing the strong pressures seen in March. The decline was largely explained by electricity subsidies associated with the hot season, despite continued increases in some agricultural items, including tomatoes, serrano pepper, and onions.

In year‑over‑year terms, headline inflation stood at 4.53%, remaining above the upper bound of Banxico’s tolerance range, although the pace of acceleration eased. Core inflation declined to 4.27%, led by both components: tradables eased to 4.10% (from 4.33% in 2H March) and services to 4.44% (from 4.53%). On a 3‑month moving‑average SAAR basis, core inflation fell slightly to 4.39%, with tradables at 4.22% and services at 4.60%. Within services, housing showed a marginal deterioration (3.74% vs. 3.65% previously).

Our take: First‑half April inflation came in above its historical average, but core inflation showed modest improvement at the margin. The decline in non‑core prices was largely seasonal, driven by electricity subsidies during the hot season. Importantly, April inflation is the key reference for Banxico’s May decision. Combined with improving core dynamics and supportive FX conditions, the data keeps the door open for a rate cut at the next meeting. Banxico’s minutes remain consistent with our baseline of one additional cut this year, taking the policy rate to a 6.5% terminal level in 2026, with rates likely to remain there through 2027. The next policy decision is scheduled for May 7, followed by the Quarterly Inflation Report on May 27.

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