Banxico Revises Inflation Forecasts Amid Stubborn Price Pressures

The Bank of Mexico (Banxico) has revised its 2024 inflation forecasts upwards, reflecting persistent high consumer prices. The board remains divided on when to resume rate cuts. Annual headline inflation has increased, with core inflation slightly decreasing in early May. Banxico held its benchmark interest rate at 11.00%.

The Bank of Mexico upwardly revised its forecasts for 2024 inflation, according to the central bank's quarterly report released on Wednesday, as persistently high consumer prices have divided its five-member board on when to resume rate cuts. Banxico, as the central bank is known, sees average annual inflation in the fourth quarter at 4.0%, up from a forecast of 3.5% in its previous report in February.

The bank also raised its forecast for average annual core inflation, often seen as a better indicator of price trends, to 3.8% from 3.5% in its previous report. Annual headline inflation in Latin America's second-largest economy has sped up after bottoming out at the end of October, reaching 4.78% in the first 15 days of May, above Banxico's target of 3%, plus or minus one percentage point.

Core inflation, meanwhile, slowed to 4.31% in early May. "The disinflationary process is expected to continue in the coming months," Banxico said, adding that headline inflation is expected to converge on its target in the fourth quarter of 2025. That is two quarters later than forecast in its prior quarterly report.

Banxico held its benchmark interest rate at 11.00% in a unanimous decision announced on May 9, following a 25-basis-point reduction in March. While the decision to hold the rate was unanimous, the board was divided over when to resume rate cuts as inflation remains stubborn, minutes from the meeting later showed.

Banxico said that its "governing board will closely monitor inflationary pressures ... going forward, it will assess the inflation outlook to discuss adjustments to the reference rate." In the report presented on Wednesday, the central bank also lowered its forecast for 2024 economic growth to 2.4% from 2.8% in its previous report.