Mexico's Food Inflation Plummets to 3.81% Amid Renewed Price Control and Supply-Side Reforms

Mexican President Claudia Sheinbaum recently announced the renewal of an agreement with food producers and retailers aimed at maintaining affordable prices for a basket of basic groceries, continuing a strategy initiated in 2022 by her predecessor, Andres Manuel Lopez Obrador. The initial program, known as the Anti-Inflation and Scarcity Pact (PACIC), has been credited by some observers, including commentator Matthew Yglesias, with significant success due to immediate supply-side reforms rather than traditional long-term price controls. The original PACIC agreement, launched in October 2022, involved 13 major food companies and retailers in a voluntary effort to combat surging food inflation. This pact focused on a limited set of 24 basic goods, including staples like corn tortillas, rice, and tomatoes, with a goal to reduce their prices by eight percent. The government at the time emphasized that the initiative was not about mandatory price controls but a collaborative effort with the private sector. Key to the program's effectiveness, as highlighted by Matthew Yglesias, were "IMMEDIATE (not long-term) supply side reforms — tariff cuts & regulatory relief." These measures included waiving import tariffs for food products and suspending inspections by Mexico's sanitary authority, SENASICA, for imported goods. Additionally, the government committed to halting the development of new regulations that could hinder trade or increase food import costs, alongside efforts to stabilize energy prices and improve food logistics. These combined strategies appear to have yielded substantial results, with Mexico's annual inflation rate for food, drinks, and tobacco dropping significantly to 3.81% in October 2024, a sharp decline from 13.95% two years prior. President Sheinbaum's administration is now renewing this successful framework, with the new accord expected to fix the maximum price of the 24 essential grocery basket items at 910 pesos ($44.2). While the immediate impact on inflation has been positive, the International Monetary Fund (IMF) has noted that disinflation in food prices could reverse, underscoring the ongoing need for robust supply-side reforms. The IMF's 2025 Article IV Mission highlighted the importance of preserving trade openness, addressing infrastructure gaps, and avoiding trade-distorting measures for Mexico's long-term economic stability and growth. The renewed agreement aims to build on past successes by fostering continued collaboration between the government and the private sector.