Mexico’s Inflation Hits 3.77% Amid IEPS and Tariff Hikes

Mexico’s annual inflation rate accelerated to 3.77% during the first half of January 2026, surpassing levels recorded in the same period last year. Data from the National Statistics and Geography Institute (INEGI) show the increase was primarily driven by the scheduled adjustment to the Special Tax on Production and Services (IEPS) and new trade tariffs on goods from non-treaty countries, affecting consumer staples and industrial inputs.

Headline inflation concluded 2025 at 3.69%, exceeding market forecasts and marking its lowest level since 2020. This deceleration from the 4.21% recorded in 2024 was largely due to a sharp drop in non-core inflation, particularly in the agricultural sector. Economists attribute this relief to a recovery in crop yields following reduced drought conditions, which allowed fruit and vegetable prices to fall 5.62% over the year.

However, this downward trend was not universal across the basic consumption basket. While energy prices remained stable, specific food products saw extreme volatility. Livestock products rose 5.76%, with key staples experiencing double-digit spikes that pressured household budgets. Notable increases included serrano peppers (+64.4%), coffee (+28%), and beef cuts (+13% to +19%). This divergence highlights a “split” inflation reality: macro indicators show cooling, yet essential proteins and certain produce remain costly for consumers.

The IEPS hike, effective Jan. 1, caused immediate price surges for cigarettes and soft drinks. In Guadalajara, cigarette prices rose 12.22%, while flavored beverages increased 3.97%. Cuauhtémoc Rivera, president, National Alliance of Small Merchants (ANPEC), warned that these adjustments reduce profit margins for over 47,000 neighborhood stores in Jalisco by up to 70%, as retailers struggle to absorb costs.

Tariff Pressures on the Textile Sector

Economists note that the inflationary impact has not yet fully reflected the 2025–2026 Customs and Tariff Reform. Effective Jan. 1, 2026, Mexico raised import duties to 5–50% across 1,463 tariff lines for countries without a free trade agreement (FTA).

Mireya Pasillas, professor, ITESO, said the textile and footwear industries are especially vulnerable. “Once inventories purchased under previous rates are exhausted, we will see another spike, particularly in textiles, footwear, and clothing,” she noted. The reform targets sectors deemed strategic to counter unfair competition from low-priced imports, notably from China, Vietnam, and India.

Mexico’s Textile Industry Context
The Mexican textile sector, a priority under the federal Plan México, faces a complex recovery.

• Regional hubs: Production is concentrated in Puebla, Tlaxcala, and Jalisco, with some plants operating at only 20–30% capacity.

• Employment impact: The sector supports over 1.2 million jobs, though high informality (nearly 60% in some sub-segments) and rising raw material costs for cotton and polyester remain structural challenges.

• Strategic pivot: To mitigate 25–35% tariffs on non-FTA fabrics, manufacturers are increasingly sourcing raw materials from Colombia and Brazil to maintain competitiveness.

The Ministry of Finance and Public Credit (SHCP) and independent analysts project national inflation could close the year above 4.1%, with Jalisco potentially reaching 4.25%. While the IEPS and import tariffs aim to strengthen tax collection and support domestic manufacturing, their immediate effect is a reduction in household purchasing power.

Economist Óscar Rojas emphasized that the long-term benefits depend on fiscal transparency. “If resources are diluted into current spending, the cost for consumers will be high and the benefits limited,” he said. With basic goods such as lemons (+15.21%) and tomatoes (+3.45%) also rising, households face a challenging start to the 2026 fiscal year.