Mexico’s annual inflation rate rose above 4% in the first half of May, reaching its highest level since December.

The national statistics agency INEGI reported Thursday that the annual headline rate was 4.22% in the first 15 days of May, up from 3.93% across April.

Inflation is now outside the Bank of Mexico’s target range of 3% plus or minus one percentage point.

The annual headline rate in the first half of this month — above the 4.01% consensus forecast of analysts polled by Reuters — is the highest since the first 15 days of December.

INEGI said that consumer prices increased 0.09% compared to the second half of last month, while the annual core inflation rate, which excludes volatile food and energy prices, was 3.97% in the first 15 days of May, up from 3.93% across April.

Mexico’s headline inflation rate has risen every month since February, after cooling to 3.59% in January.

Despite the upward trend in inflation in recent months, the Bank of Mexico (Banxico) cut its benchmark interest rate by 50 basis points last week and by the same margin in March.

The central bank also reduced its key rate by 50 basis points in early February. With last week’s cut, the rate currently stands at 8.50%, the lowest level since August 2022.

Bloomberg reported that the uptick in inflation in the first half of May “likely won’t deter central bankers from cutting the interest rate again in June given the economy also posted weak growth.”

INEGI reported on Thursday that the Mexican economy contracted 0.4% in March compared to February and 0.1% on an annual basis.

GDP increased 0.2% in the first quarter of 2025 compared to the final three months of last year and 0.6% compared to Q1 of 2024. Those final data figures match the Q1 preliminary growth numbers INEGI published in April.

Despite the weak growth, Banco Base said in an analysis note that it would be “prudent” for Banxico to pause its monetary easing cycle. The Mexican bank highlighted that core inflation rose to its highest level since last August in the first half of this month.

“This is a cause for concern, as the core component determines the trajectory of headline inflation over the medium and long term, and its recent upward trend suggests that the Bank of Mexico has not yet achieved sustained inflation convergence to the 3% target,” Banco Base said.

Banxico said last week that its governing board could “consider adjusting” its benchmark interest rate “in similar magnitudes” — i.e., by 50 basis points — at future monetary policy meetings.

Economists at Brazilian brokerage and financial services group XP predicted another 50 basis point reduction to Banxico’s key rate in June, but said that additional upticks in inflation “could motivate” the central bank to slow the pace of its monetary policy easing to 25 basis points in August.

Inflation data in detail 

INEGI’s latest data shows that agricultural products (fruit, vegetables and meat) were 5.79% more expensive in the first half of May than in the same period last year. Annual inflation for meat alone was 10.25%, while fruit and vegetable prices decreased 1.22%.

Prices for processed food, beverages and tobacco rose 4.47% annually in the first 15 days of May, while non-food goods were 2.64% more expensive.

The cost of services increased 4.49%, while energy prices, including those for gasoline and electricity, rose 3.71%.

With reports from El Economista, Bloomberg and Reuters