Latam Daily: Colombia Inflation Surprise, Mixed Mexican Industrial Production

• Colombia: July inflation was higher than expected, with food prices surprising on the upside

• Mexico: Weak industrial activity despite increases in manufacturing and construction

COLOMBIA: JULY INFLATION WAS HIGHER THAN EXPECTED, WITH FOOD PRICES SURPRISING ON THE UPSIDE

Colombia’s monthly CPI inflation rate was 0.28% m/m in July, according to data published by DANE on Friday, August 8^th, 2025. This result was above analysts’ expectations in the BanRep survey (0.18% m/m) and the Scotiabank Colpatria forecast (0.20% m/m). During the month, 10 of the 12 groups registered positive monthly variations, with food and lodging and utilities contributing the most to total inflation, accounting for 75% (chart 1).

The upside surprise was driven by food inflation. Food prices increased 0.82% m/m, well above the average historical variation for the month of July excluding the pandemic (0.08% m/m). We associate the increase in food prices with the road closures that occurred during the month due to the strike of rice producers. The lodging and utilities sector was the second largest contributor to July inflation, with a 0.19% increase and a 6bps contribution, mainly due to increases in housing-related services, while utilities registered a negative change for the second month in a row (-0.31% m/m).

In annual terms, inflation rose from 4.82% in June to 4.90% in July, interrupting the declines recorded in the previous two months. Non-food inflation fell from 4.94% y/y to 4.89% y/y, while core inflation (excluding food and regulated prices) showed a slight acceleration from 4.77% y/y to 4.79% y/y. Services inflation remained stable compared to the previous month at 6.0%, reflecting an acceleration in annual inflation for restaurants and hotels, and transportation. Meanwhile, inflation for goods rose from 1.58% to 1.66%, remaining below the target range (2%–4%).

Previous results affirm our expectation that inflation will rebound in the following months, closing 2025 at levels above 5%. In August, the BanRep board will not have to decide on interest rates. However, given the current outlook and the political risks that could impact inflation, such as a greater fiscal deficit and potential high minimum wage increases, we believe that the room for cuts is limited, and the interest rate will remain stable at 9.25% for the remainder of the year.

Our baseline scenario is closing 2025 with a monetary policy rate of 9.25%. The possibility of resuming the easing cycle is highly dependent on decisions regarding the minimum wage increase for 2026, as indexation effects were one of the main reasons inflation has not declined more rapidly in 2025, and these effects remain a key source of uncertainty for 2026.

Other highlights:

• Two groups accounted for 75% of total inflation. Food was the largest contributor, with a monthly increase of 0.82% and a contribution of 15bps. Within the food basket, fruits and onions were the largest contributors to the food price increase, with increases of 3.11% m/m and 10.5% m/m. However, other foods also registered significant increases, such as carrots (+19.3% m/m), tomatoes (+5.17% m/m) and coffee (+6.34% m/m), However, 32% of the food items included in the basket registered increases below zero, with potatoes registering the largest decrease (-6.82% m/m).

• Lodging and utilities were the second largest contributors to inflation. Lodging and utilities registered a monthly increase of 0.19%, contributing 6bps to the total. The increase was due to housing-related services, with rentals showing a more modest increase than the previous month at 0.31% m/m. However, other services related to housing administration and security registered a 0.99% m/m increase, higher than the 0.82% m/m in June. Meanwhile, utilities registered a -0.31% m/m decrease, showing negative variations across all components. Gas rates fell -1.19% m/m, electricity -0.20% m/m, completing three months of negative variations, while water fell -0.09% m/m.

• Other items contributed to inflation. Health services showed a 0.39% m/m increase, the second largest increase, but contributing only 1bps. Restaurants and hotels increased 0.35% m/m, contributing 4bps, maintaining higher monthly variations than the historical average. Despite increased domestic demand from households, goods prices have maintained moderate variations, with household appliances registering negative variations in the month and vehicles falling slightly (-0.08% m/m).

• Services continued to show persistence in July. Services inflation had maintained a downtrend; however, in July it remained stable at 6% y/y despite some reductions in leisure-related prices. Services are believed to contribute around 65% of total annual inflation (charts 2 and 3). 

—Jackeline Piraján & Daniela Silva

MEXICO: WEAK INDUSTRIAL ACTIVITY DESPITE INCREASES IN MANUFACTURING AND CONSTRUCTION

In June, industrial production softened its annual decline, from -0.7% to -0.4% y/y, marking five out of the six months of the year in negative territory. Across the main categories, the sharpest drop came from mining, deepening to -8.6%, with consecutive declines since July 2023. Additionally, electricity, gas, and water generation and distribution maintained a decline of -3.7% (chart 4). 

Meanwhile, construction rose from 0.5% to 1.7%, owing to stronger growth in building construction (8.7%), which offset the drop in heavy and civil engineering works (-20%). Manufacturing also showed a slightly more favourable pace, rising from 0.5% to 0.7%, although still with heterogeneous behaviour in its components. As a result, in the cumulative total for the first six months of the year, production maintained a decline of -1.3% YTD.

On a seasonally adjusted monthly basis, activity turned negative, with -0.1% m/m, after two consecutive months of growth. Construction fell by -0.2%, while manufacturing posted three months in positive territory, rising from 0.1% to 0.3%. The sharpest drop came from mining, which continues to show a steep decline of -1.4% (chart 5).

Looking ahead, we believe industrial activity could remain in negative territory due to stagnation in mining and public utilities, along with weakness in construction, affected by both international and domestic uncertainty.

—Rodolfo Mitchell & Miguel Saldaña