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The tail of our inflation curve is currently driven by two key factors: U.S. tariffs set for April 2, 2025, and Plan Mexico, which aims to revitalize domestic manufacturing and reduce reliance on cheap imports from Asia. These factors are creating upward price pressures, amplified by slowing Chinese imports and foreign investment uncertainty. Mexico’s recent protective measures, like a 15-35% clothing tariff and 19% e-commerce tax, have slowed Chinese imports.

At the same time, capital outflows driven by tariff-related uncertainty are likely to further weaken the Mexican peso, making imports more expensive. Starting in Q4 2024, following Trump’s election win, we observe a sharp deceleration in foreign direct investment from the U.S., indicating that American firms are growing increasingly hesitant to invest in Mexican industries due to ongoing tariff uncertainty (Figure 1). This comes at a time when Mexico’s shift toward self-sufficiency may take time, intensifying price pressures.

Figure 1

Banxico’s Survey Y/E inflation forecast is projected at 3.66%, while our latest forecast has Y/E inflation at 4.34%, down slightly by 0.11% from 4.45% in February.

As shown, the progression of our forecasts is trending downwards (Figure 2), and we anticipate our next forecast to be around 4.10%, in line with market expectations, but still above Banxico’s Survey. Despite downward pressure from slowing industrial production, inflation expectations are likely to remain above Mexico’s 3% target. Volatility in the second half of 2025 is expected to persist unless uncertainty subsides.

Figure 2