Mexico's Inflation Accelerates, Pressuring Central Bank

Mexico's annual inflation accelerated much more than expected in early March, increasing pressure on the central bank at its interest rate meeting on Thursday. Inflation accelerated to 4.63% in the first two weeks of March compared to the same period last year, according to data published on Tuesday by the national statistics institute. The minutes were published before the start of the war in Iran, which has driven oil prices to multi-year highs. The difficulty Banxico has in containing inflation led the board to postpone its projection on when general inflation will reach its target—of 3% plus or minus one percentage point—until the second quarter of 2027, from the third quarter of 2026. The figure exceeded the median estimate of 4.37% from analysts surveyed by Bloomberg and rose from the 4.13% recorded at the end of February. Underlying inflation, which excludes volatile food and fuel prices, moderated slightly to 4.46%, down from 4.48% in the last two weeks of February, and was just below the median estimate of 4.47%. What are the forecasts for Banxico's interest rates? Banxico, as the central bank is known, faces a delicate decision at its March 26 meeting after pausing a nearly two-year easing cycle last month to assess the impact on prices from new tariffs and a tax increase that took effect at the beginning of the year. Fifteen of the 29 analysts surveyed by Bloomberg expect policymakers to keep the rate at 7%, while 14 project a 25-basis-point cut to 6.75%. The minutes of the February 5 interest rate meeting showed that most members of the governing board anticipated a gradual slowdown in inflation, with tariff and tax effects limited to a narrow set of products.