Bank of Mexico Sees Inflation Turning Back Toward 3% Despite Recent Food Price Spike

Bank of Mexico Governor Victoria Rodriguez told a Senate committee that inflation is expected to resume a gradual decline toward the bank's 3.0% target, even after a recent rise in some fruit and vegetable prices. The central bank's board, she said, is close to concluding a rate-cutting cycle that began in early 2024 and may consider one final 25 basis point reduction at its May policy meeting. Minutes from March show notable division among board members amid concerns about inflation and geopolitical tensions versus a sluggish economy. April inflation slowed to 4.53% in the first half of the month, compared with a jump in March.

Key Points

Governor Victoria Rodriguez said inflation is expected to resume a gradual decline toward the 3.0% target despite a recent rise in some fruit and vegetable prices - impacts noted for consumer food prices and the agricultural sector.
The central bank's board is close to finishing a rate-cutting cycle that began in early 2024 and may consider a final 25 basis point cut at the May policy meeting - relevant for interest-rate-sensitive sectors and financial markets.
March meeting minutes show the board is deeply divided, balancing fears of resurgent inflation and Middle East conflict against the needs of a sluggish economy - this split affects policy predictability and market expectations.

April 28 - Bank of Mexico Governor Victoria Rodriguez told a Senate committee that the central bank anticipates inflation will soon resume a gradual descent toward its 3.0% target, despite a recent uptick in the prices of certain fruits and vegetables.

Rodriguez said the governing board is nearing the end of a rate-cutting cycle that began in early 2024. She added that the board would consider making one final reduction in the policy rate at its next monetary policy meeting in May.

At its most recent meeting, the board lowered the benchmark interest rate by 25 basis points to 6.75% in a contentious 3-2 vote. Minutes from the central bank's March meeting showed that the board remains deeply split as members weigh the risks of resurgent inflation and the impact of Middle East conflict against the needs of a sluggish domestic economy.

Mexico's annual inflation rate slowed during the first half of April to 4.53%, after a rise in March. The central bank targets inflation of 3.0% with a tolerance band of plus or minus one percentage point.

Policy context

Governor Rodriguez framed the near-term inflation path as one that should return to a downward trend, while acknowledging recent volatility in food prices. The comments underscore that the board is balancing disinflationary progress with episodic price movements in specific food items.

Board dynamics

The 3-2 vote at the prior meeting and the March minutes point to significant divergence among board members. That division reflects tensions between concerns about a possible rebound in inflation and geopolitical developments, and the need to support an economy that remains weak.

Data point

Official figures show annual inflation at 4.53% in the first half of April. The central bank's target remains 3.0% with a +/-1 percentage point tolerance.

The central bank's next decision in May will be watched closely by markets and policymakers, as officials consider whether to complete the easing cycle with a final rate cut or to pause given the risks highlighted in recent meeting minutes.

Risks

Resurgent inflation driven by episodic food price spikes could complicate further rate cuts - this risk mainly affects consumers and the agricultural sector.
Geopolitical tensions in the Middle East create uncertainty that the board flagged in March minutes - such uncertainty can influence inflation expectations and financial market volatility.
A sluggish domestic economy raises the prospect that officials may choose to delay additional easing despite progress on inflation - this tension affects growth-sensitive industries and interest-rate-dependent investments.

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Key Points

Risks

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