Mexico's inflation near target, but Banxico chief warns against premature victory
Mexico's inflation has fallen sharply to just above the central bank's target, but Bank of Mexico Governor Victoria Rodríguez Ceja is urging caution against declaring the battle won.
"At the Bank of Mexico, we're not claiming victory yet," Rodríguez told El Financiero in an interview published Monday, despite the national statistics agency INEGI reporting that annual headline inflation dropped to 3.12% in July from 3.37% in June.
The July reading marked the lowest inflation rate since May 2020, representing a dramatic decline from the 8.7% peak reached in August and September 2022 during a period of global supply chain disruptions and surging commodity prices. Over the past year, Mexico's inflation rate has fallen 1.47 percentage points from its 2026 peak of 4.59% in March.
Core inflation remains stubbornly high
While the headline figure approaches the Bank of Mexico's 3% target, Rodríguez emphasized that underlying price pressures remain concerning. Core inflation stood at 3.95% year-over-year in July, driven by processed food, beverages and tobacco prices rising 4.85% annually and services costs increasing 4.36%.
Private school fees exemplified the persistent services inflation, jumping 5.93% compared to the previous year.
The favorable headline number resulted partly from a 3.34% annual decline in agricultural product prices, including fruit, vegetables and meat, which also fell 1.51% on a month-over-month basis. Energy prices, including electricity and gasoline, rose 3.31% year-over-year, contributing to a mere 0.29% non-core inflation reading.
However, Rodríguez cautioned that the recent decline in fresh food prices stems from "favorable supply shocks" that won't last. The Bank of Mexico doesn't expect lower agricultural prices to persist due to "the unique characteristics of these prices and their exposure to meteorological phenomena."
Central bank maintains 6.50% rate amid uncertainty
The Bank of Mexico's governing board voted unanimously last Thursday to maintain its benchmark interest rate at 6.50%, a level reached after an aggressive easing cycle. Between August 2024 and December 2025, Banxico cut rates at 12 consecutive policy meetings, reducing borrowing costs by four percentage points total.
This easing followed a prolonged tightening campaign that saw rates reach a record 11.25% in February 2023, where they remained for 13 months before the first cut in March 2024. The multi-year average inflation rates reflect the broader trend: 7.90% in 2022, 5.53% in 2023, and 4.72% in 2024.
Rodríguez, who became the first woman to lead Banxico when she took office on January 1, 2022, after nomination by President Andrés Manuel López Obrador, told El Financiero that the current rate "will contribute to the consolidation of inflation's downward path toward the target." The Banker magazine recognized her as central banker of the year in the Americas for 2023, praising her proactive monetary policy approach.
Inflation expected to rise through year-end
Despite July's encouraging reading, Banxico forecasts average annual headline inflation of 3.5% for both the third and fourth quarters of 2026, suggesting price pressures will intensify in coming months. The central bank expects inflation to decline gradually throughout 2027, reaching 3.4% in the first quarter, 3.3% in the second, 3.2% in the third, and finally hitting the 3% target in the fourth quarter.
This timeline represents a two-quarter delay from Banxico's June projections, when the bank anticipated reaching target inflation by mid-2027.
The revised forecast reflects multiple upside risks, including persistent core inflation, potential disruptions from foreign trade policies or geopolitical conflicts, climate-related impacts on food prices, cost pressures, and possible peso depreciation. The Mexican currency appreciated nearly 16% against the dollar in 2025, defying most economist expectations, but future trends remain uncertain.
Downside risks include weaker-than-expected economic activity in Mexico or the United States, lower cost pass-through to consumers, and continued peso strength. Mexico's economy grew just 0.8% in 2025 before rebounding with 1.5% quarter-over-quarter growth in the second quarter of 2026.
Rodríguez stressed that Banxico's primary focus when setting monetary policy is the "inflation dynamic" rather than economic growth, though she acknowledged the prolonged period of weak economic performance. The central bank's interest rate remains "subject to change based on our assessment of the inflation outlook," she said.
