LowIV Macro Policy & Sovereign Debt8 October 2026, Thursday
Food lifts Mexico's headline inflation as core keeps easing
INEGI data show Mexico's annual inflation rose from 3.26% to 3.45% in September. Core inflation eased from 3.88% to 3.75%; Banxico has held its rate at 6.50%, while the Fed moved to a hike in September.
According to INEGI data cited by La Razón, the consumer price index rose 0.42% on the month in September to 146.075. Core inflation, which strips out volatile items such as food and energy, rose 0.20% on the month. Expansión reports that the result came in just below the Citi survey's expectations of 3.46% year on year and 0.43% month on month. The core forecast was 3.78%.
Food drove the increase. Expansión reports non-core inflation of 1.20% on the month and 2.45% on the year; tomatoes rose 30.25% month on month and onions 23%. Fruit and vegetables rose 4.40% on the month and 8.78% on the year. LPG climbed 3.14%. Potatoes fell 13.92% and avocados 8.11%. Within core, services rose 0.26% on the month and goods 0.14%.
The data do little to ease Banxico's dilemma. Por Esto reports that Banxico unanimously held its rate at 6.50% on 24 September, saw an upward bias in inflation risks and expects to return to target in the fourth quarter of 2027. In the same statement the bank said it was not bound to mechanically follow the Fed's 25 basis point hike in September. According to Expansión, analysts' pre-release year-end forecasts were 3.90% for headline inflation and 6.50% for the policy rate.
Talay assessment
Bottom line
Food prices pushed Mexico's headline inflation higher, but core fell to 3.75%, showing disinflation is still under way. That leaves Banxico under no pressure to follow the Fed with a hike. Yet while the Fed keeps tightening, the rate gap between the two countries narrows. The most likely path is Banxico holding at 6.50%.
Likely effects
- Banxico policyUncertain1–6 months
Core inflation falling to 3.75% supports Banxico holding at 6.50%; the case for a hike stays weak.
- Mexican pesoNegative1–6 months
A Banxico hold while the Fed hikes narrows the rate gap, leaving the peso more vulnerable to swings in carry flows.
- Food pricesUncertainWeeks
Monthly jumps of more than 20% in tomatoes and onions are a temporary supply shock and are expected to reverse in the October data.
Possibilities, ranked
- 1Banxico holds60%
Banxico keeps its rate at 6.50% at the November meeting and core inflation stays below 3.8%.
Watch: INEGI's first-half October inflation data
- 2Currency pressure forces a hike25%
A Fed hike in December narrows the rate gap, the peso weakens and Banxico leans toward a hike.
Watch: USD/MXN and the odds of a December Fed hike
- 3Rate cut back on the table15%
The food shock fades, headline falls below 3.2% and Banxico opens a debate on easing.
Watch: October headline inflation falling below 3.2%
Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.
Market reaction
Indicators affected
- Annual inflation▼ 3.45%
- Core inflation▲ 3.75%
- Banxico policy rate▲ 6.50%