Mexico inflation slows to 3.94%, but core prices stay elevated

Mexico’s inflation cooled to 3.94% in May, returning to the top end of Banco de México’s target band, but the softer headline number masked a tougher underlying picture. Consumer prices fell 0.21% from April, the first monthly decline in two years, yet core inflation, which strips out volatile food and energy items, still ran at 4.19% and rose 0.22% on the month.

The annual rate was down from 4.45% in April and came in below the 4.2% forecast in a poll of analysts. A separate mid-May reading had already pointed to easing pressure, with inflation at 4.11% in the first half of the month and a 0.16% biweekly decline. Together, those figures suggest disinflation is real, but uneven and fragile.

That is why policymakers are likely to keep a close eye on core services, where price pressure has stayed sticky. Pantheon Macroeconomics economist Andres Abadia said inflation is moving in the right direction but that “progress remains uneven,” adding that core services inflation is still too high. Banxico has also said services inflation has fallen only gradually, while merchandise inflation has been stronger than expected.

The May report matters because it places inflation back inside Banxico’s 3% target range, plus or minus 1 percentage point, after several months above it. But the central bank has already signaled how cautious it remains. Banxico cut its benchmark overnight interbank target rate by 25 basis points to 6.50% effective May 8, 2026, after a prior cut to 6.75% effective March 27, 2026. It has said inflation is not expected to converge to its 3% target until the second quarter of 2027.

That long timeline leaves the Banxico Governing Board with little room for complacency. Governor Victoria Rodríguez Ceja, along with deputies Jonathan Heath, Galia Borja and José Gabriel Cuadra, must weigh a softer headline path against persistent services inflation and outside risks, including exchange-rate depreciation and geopolitical disruptions. For households, the headline improvement offers some relief, but the core numbers show why the cost of living still feels stubbornly high in Mexico City and beyond.