Mexico’s November Inflation Hits 3.8%, Ahead of Banxico Meeting

Mexico’s annual inflation accelerated more than anticipated in November, reaching 3.8%, according to the National Institute of Statistics and Geography (INEGI). The figure surpassed the median Bloomberg estimate of 3.7% and the 3.5% recorded in October, marking a notable increase one week before Mexico’s Central Bank (Banxico) is set to hold its final policy meeting of the year.

Core inflation, which excludes volatile food and energy items, also rose—to 4.43% from 4.28% in October. Banxico targets inflation at 3%, plus or minus one percentage point, a level the core index has consistently exceeded.

Sub-governor Jonathan Heath recently said the institution faces a credibility crisis due to its inability to control inflation, Banxico’s sole constitutional mandate.

Monetary Policy Outlook

Analysts surveyed by Citi Mexico maintain their forecast that Banxico will implement a 25 basis point rate cut on Dec. 18, closing the year with the benchmark rate of 7.0%. Consensus  projections indicate the rate will end 2026 at 6.50%.

Banxico’s latest policy minutes suggested that the December cut will be followed by a pause in February 2026. The bank also halved its 2025 Gross Domestic Product (GDP) growth forecast to 0.3%, arguing that slower economic activity should help ease price pressures. Some members of the governing board expect headline inflation to converge to the 3% target by 3Q26.

Services Sector Drives Price Pressure

INEGI data showed that the main source of inflationary pressure came from the services sector, a key component of core inflation. Service prices increased 4.49% annually, outpacing the 4.37% rise in merchandise prices. Non-core inflation stood at 1.73%.

Measured by incidence, electricity prices posted the largest monthly increase—20.70%—due to the end of the seasonal warm-weather subsidy. Other products and services with notable monthly increases included:

• Serrano chili: 24.76%

• Zucchini: 17.05%

• Tomato: 14.34%

• Professional services: 10.93%

• Colectivo transport: 4.90%

• Casual eateries (loncherías, fondas, torterías y taquerías): 0.82%

• Restaurants and similar establishments: 0.70%
   

Products that helped ease monthly inflation included limes (-7.46%), avocado (-7.28%), ron (-5.43%) and table wine (-4.29%).

Long-Term Inflation Risks

Despite expectations of a rate cut, analysts at Grupo Base, Goldman Sachs, and other consultancies project that inflation in 2026 will remain above Banxico’s 3% target, reaching between 3.8% and 4.2%.

Key factors contributing to upward risks include the recently approved 13% increase in the minimum wage, marking the eighth consecutive year of double-digit real gains and totaling a 168% cumulative real increase. Without corresponding productivity growth, economists warn, wage pressures have contributed to inflation—particularly in services—and boosted informal employment.

Additional inflationary pressures are expected from increases in the Special Tax on Production and Services (IEPS) on select goods and higher employer contributions to Afores (pension funds).