Bank of Mexico Eyes Short-term Inflation Surge Amid Economic Growth

The Bank of Mexico anticipates higher inflation due to taxes on sugary drinks and tariffs on Chinese imports. Despite this, the central bank maintains that these effects are temporary. It has paused interest rate cuts and extended the timeline for hitting its inflation target until the second quarter of 2027.

The Bank of Mexico has adjusted its inflation forecasts, taking into account the impact of taxes on sugary beverages and new tariffs on Chinese imports. According to minutes from the bank's February meeting, most board members believe these effects will be temporary.

In a significant policy decision earlier this month, the central bank held its benchmark interest rate at 7%, marking its first pause since mid-2024. The bank, known as Banxico, revised its timeline for reaching the 3% inflation target to the second quarter of 2027, extending from earlier projections.

The minutes highlighted sluggish declines in service prices, such as rents and restaurants, as a factor in the updated inflation forecast and the rate pause decision.