Mexico's annual inflation resumes upward trend in early January, boosted by tax hike

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Mexico's inflation resumes upward trend at 3.77%

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Central bank likely to pause rate cuts at February meeting

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New taxes drove price increases, particularly cigarettes and soft drinks

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Additional inflationary pressures ahead

(Adds analysts' quote in paragraphs 3 and 7, details and context of price increases)

By Aida Pelaez-Fernandez

MEXICO CITY, Jan 22 (Reuters) - Mexico's annual inflation rate hit ?3.77% in the first half of January, official data showed on Thursday, boosted by a tax rise at the start ?of the year to resume an upward trend that had been briefly interrupted at the end ?of 2025.

Consumer price rises quickened from a prior reading of ?3.72% in the first ?half of December, bolstering prospects that the central bank will pause its rate easing cycle.

"The rise in inflation in the ?first half of January supports our view that ?the policy rate will be left unchanged at 7.00% at the next meeting in February," Capital Economics' emerging markets economist Kimberley Sperrfechter said.

Despite the increase, ?the inflation rate landed below expectations of economists ?polled by ?Reuters, who had forecast it to come in at 3.86%.

NEW TAXES, HIGHER PRICES

Cigarettes and bottled soft drinks registered the biggest price increases during the fortnight, the national statistics agency ?said, due to the impact of a tax increase that came into effect at the beginning of the year.

The Mexican government also raised tariffs on

imports from China

and other mainly Asian countries with which Mexico has no trade agreements. In addition, it implemented a minimum wage increase.

"Looking ahead, upside risks to inflation persist, given the tariffs on countries without free ?trade agreements ?and the increase in the IEPS," analysts at brokerage Monex said in a note, referring to the Special Tax on Production and Services.

Mexico's central bank is ?expected to hold its benchmark rate at its next meeting after its latest

25-basis-point cut

back in December, as its board members signaled greater caution linked to the

new taxes and trade uncertainty

.

The rise in the closely watched core price index, which strips out some volatile food and energy prices, reached 4.47% in the 12 months through early January, also up from a reading of 4.34% in early December and above ?the Bank of Mexico's permanent target of 3% plus-or-minus one percentage point.

Month-on-month, Mexican consumer prices rose 0.31% during the first half of January, also increasing from a prior 0.17% in early December, while the core price index climbed ?0.43%. (Reporting by Aida Pelaez-Fernandez; Additional reporting by Noe Torres; Editing by Alex Richardson and Peter Graff)