Inflation cooled considerably in January, Mexico’s national statistics agency INEGI reported, ending the first month of 2025 at 3.59%, even lower than the 4.21% rate it hit in December.

The slowdown was slightly more than expected, just below the 3.61% expected by economists polled by the news agency Reuters and below the 3.63% median estimate of economists surveyed by Bloomberg News.

The news comes a day after Mexico’s central bank (Banxico) accelerated the pace of its interest rate cuts — lowering its benchmark interest rate 50 basis points to 9.50%.

With inflation slowing and the economy contracting, the bank signaled there would likely be more monetary easing ahead.

During her Friday morning press conference, President Claudia Sheinbaum applauded January’s “very good” inflation figures, as well as the central bank’s rate decision a day before.

The INEGI report indicates consumer price increases are now within Banxico’s target range of 3% plus or minus one percentage point.

According to INEGI, consumer prices were up 0.29% in January, slowing from the 0.38% rise seen in December. Economists in a Reuters poll had predicted a 0.31% increase.

Inflation was down compared to January 2024, when monthly inflation hit 0.89% and annual inflation was at 4.88%.

Fruits and vegetables were the main driver of the better-than-expected January figure, falling 4.69% on the month, Bloomberg reported. Beverages, tobacco and other food items climbed 0.76% on the month, while energy prices rose 0.93%.

Core inflation, which strips out some volatile food and energy prices, accelerated slightly to 0.41% during the month and 3.66% on an annual basis. This was less than the 3.69% estimated by analysts surveyed by Bloomberg.

“This is a good inflation report, supporting Banxico’s dovish tilt yesterday,” Andrés Abadía, the chief Latin America economist at Pantheon Macroeconomics, told Reuters.

Even so, Abadía said Mexico is not out of the woods yet.

“Risks of the trade saga are lurking, and they could force the bank to keep a cautious stance,” he said. “Uncertainty can also prompt a fall in investment, which pressures activity to the downside and also eases inflation. So it’s a double-edged sword.”

Analysts in the latest Citi survey published this week forecast inflation would be at 3.9% by the end of this year, according to Bloomberg, and sinking a bit further to 3.7% by the end of 2026.

With reports from La Jornada, Reuters, Bloomberg News and El Financiero