- June’s bi-weekly inflation came in at 0.10% FoF, below market consensus (0.12% FoF) and above our forecast (0.06% FoF), moderating in annual terms to 4.51% after peaking at 4.62% YoY in the previous fortnight. Core inflation was 0.22% FoF, above both market consensus (0.17% FoF) and our estimate (0.13% FoF), reaching 4.17% YoY.
- Within the core index, goods inflation has continued to accelerate after the sharp moderation experienced last year. The annual rate before the pandemic averaged 4%, so this rebound is consistent with a reversion to its long-term trend. In contrast, services inflation, which averaged less than 3% YoY before the pandemic, has shown a bumpier reversion, as key markets - such as housing, education, air fares, among others - have been significantly affected since 2020.
- We think that the core pressures observed in the first half of June will be short lived, partly reflecting price normalisation after a sales period, seasonal effects ahead of the summer holidays, and weakening domestic demand.
- We stand pat on our forecast that headline and core inflation will end the year at 3.9% and 3.8% YoY, respectively. Non-core inflation will be the main driver of further disinflation in the coming months due to lower agricultural prices as the drought conditions in Mexico continue to improve compared with 2024.
- We expect Banxico to cut rates by another 50bp at its next meeting on 26 June as the downside risks to economic growth remain unchanged and inflation is set to fall back below 4% in 3Q25. Given our outlook for a lower policy rate than markets are currently pricing in, we maintain a positive view on local fixed income, favouring MBonos over TIIEs, with a preference for M29 and M30 bonds. We also expect further MXN depreciation in 2H25 due to the lower carry and a higher risk premium.