Mexico January Inflation Hits 3.79%, Below Forecasts

Mexico’s annual inflation rate accelerated to 3.79% in January, according to data released by the National Institute of Statistics and Geography (INEGI). The figure came in slightly below the 3.82% forecast in a recent Reuters survey, offering modest relief to markets, although it marked an increase from the 3.69% recorded in December.

The National Consumer Price Index (INPC) rose 0.38% on a monthly basis, driven largely by fiscal adjustments and seasonal price movements. In response to persistent inflationary pressures and currency volatility, Mexico’s central bank (Banxico) paused its rate-cutting cycle at its first meeting of the year, keeping the benchmark interest rate at 7%. The central bank also revised its year-end inflation forecast upward to 3.5% from 3%, citing ongoing energy cost pressures and global supply chain disruptions that have lingered since the 2024 US port strikes.

Fiscal Pressures and Price Drivers

The January acceleration was influenced in part by changes to the Special Tax on Production and Services (IEPS) on tobacco and sugar-sweetened beverages, which together contributed nearly 0.15 percentage points to the monthly increase.

Core inflation, which excludes volatile food and energy items, stood at 4.52% annually, remaining well above Banxico’s 3% target. Within the core component, merchandise prices rose 4.56%, reflecting higher costs for imported inputs amid a weaker peso, while services increased 4.48%, supported by wage pressures in urban labor markets.

Non-core inflation rose 1.59% annually. Some agricultural products recorded sharp increases, including lemons (21.21%) and bananas (12.96%), partly due to drought conditions in key producing regions. By contrast, airfare (-36.64%) and eggs (-6.31%) provided offsetting downward pressure. Energy prices moderated overall, with gasoline averaging a 2.1% monthly decline following IEPS adjustments, although analysts warn that planned electricity tariff increases in non-subsidized regions could add pressure later in the year.

Investment Confidence Weakens

Alongside inflationary pressures, business confidence has declined to levels comparable to the 2020 pandemic period. According to Coparmex data, only 39.5% of companies consider it a favorable time to invest, down from more than 55% during the nearshoring expansion of 2022–2023.

Juan José Sierra Álvarez, president, Employers’ Confederation of the Mexican Republic (Coparmex), identified three primary barriers to investment:

• Economic uncertainty (26.1%): Elevated inflation and fiscal changes, including proposals that could raise corporate tax rates by two to three percentage points.

• Insecurity (20.4%): Rising crime affecting logistics and operating costs, particularly in industrial corridors.

• Political factors (18.4%): Legislative volatility, including concerns about judicial reforms and rule-of-law stability.
   

Foreign direct investment (FDI) reflected this sentiment, declining 12% in 2025 to US$36.1 billion, according to the Secretariat of Economy. Manufacturing FDI fell 18% in the automotive and electronics sectors. Gabriela Siller, chief economist at Banco Base, described the environment as a “perfect storm” of political polarization, delayed capital expenditure and a peso trading near 20 per dollar, its weakest level in two years.

The Cost of Insecurity

Crime continues to weigh on economic activity. Estimates suggest insecurity costs roughly 4% of GDP annually, or more than US$80 billion based on 2025 figures. In 2025, 47% of Coparmex members reported being victims of theft, extortion or cargo hijacking, up from 39% in 2024.

Extortion, often conducted via phone threats linked to prison-based networks, affected 17.3% of businesses, with small and medium-sized enterprises particularly exposed. Many reported paying “protection fees” equivalent to 5–10% of monthly revenue.

Companies have reallocated an average of 20% of their investment budgets to private security. In some states, including Guerrero and Michoacan, security-related expenses exceed 30% of operating revenue. In Tamaulipas, cargo theft alone caused an estimated US$1.2 billion in losses in 2025, discouraging logistics expansion tied to USMCA-driven trade.

Outlook and Sectoral Opportunities

Despite broader weakness, services and tourism show signs of resilience. Mexico will serve as the partner country at Fitur 2026 in Madrid, aiming to attract more than €500 million in agreements. The tourism sector supports 4.5 million jobs and generated US$32 billion in revenue in 2025, up 7% year over year.

Emerging segments such as sustainable tourism in Quintana Roo and digital booking platforms could generate up to 500,000 additional jobs by 2027, according to Tourism Ministry projections.

Coparmex has called for measures to restore confidence, including strengthening judicial certainty, deploying technology-driven anti-extortion initiatives and expanding tax incentives for green investment, such as 30% credits for renewable energy projects. While USMCA integration continues to anchor 80% of Mexico’s exports, analysts caution that without improvements in security and regulatory clarity, GDP growth could fall below 1.5% this year, according to consensus forecasts.

Banxico’s decision to hold rates provides short-term stability, but structural challenges remain central to Mexico’s medium-term outlook.