- Headline inflation in December came in at 0.39% MoM, below market consensus (0.43%) and in line with our forecast (0.38%), moderating in annual terms from 4.55% in November to 4.21%. Core inflation was 0.51%, rebounding in annual terms from 3.58% in November to 3.65%.
- Core inflation rose broadly in line with its seasonal pattern, which suggests that the reversion towards its long-term trend is almost complete. However, within the components of core inflation, merchandise inflation is still performing below its long-term trend, which led to core disinflation ending the year at 2.47% YoY.
- Services inflation peaked in March 2023 at 5.71% YoY, having eased at a gradual pace since then to 4.94% YoY in December. This slow convergence is due to the strong seasonality of these prices and because some of the items within the subindex reflect realised inflation with a lag due to their contractual nature. On the flipside, Services disinflation gained momentum in the second half of 2024.
- Non-core inflation prevented headline inflation from falling within Banco de México’s variability range. Going forward in 2025 we expect headline inflation to moderate towards 3.5% and core inflation to 3.4% YoY.
- The minutes of Banco de México’s previous December 2024 monetary policy decision were released today (09/01). The main highlight is that three Board members explicitly mentioned prospects of more aggressive rate cuts. However, only one of them considered the possibility of an oversized cut in this meeting.
- We expect the central bank to continue cutting rates through 2025. While the visibility of the pace is currently low, we expect a lower policy rate than the one currently being priced in local curves and, as such we maintain our preference for the 2-5Y MBonos.
- The MXN will likely remain extremely volatile, and were Banxico to cut by 50bp, it would certainly depreciate further. Nonetheless, in the current context any response to monetary policy actions should be short-lived as the main driver in the coming weeks will be more related to the noise associated with Trump’s policies. We thus expect wide ranges ahead.