Economic Slowdown and Rising Inflation
The Mexican economy is experiencing a slowdown, with GDP growth at a mere 0.2% in the first quarter compared to the last quarter of 2025, while annualized inflation reached 4.22% in the first half of May.
GDP Growth: Just Enough to Avoid Recession
The 0.2% growth is sufficient to prevent experts from declaring a technical recession, but it clearly indicates an anemic economic performance, particularly in job creation and industrial activities. The southern states, which previously benefited from substantial investments during the previous administration, are now seeing the fading effects of projects like the Tren Maya and the Dos Bocas refinery.
Inflation: A Concern for Policy Goals and Daily Life
The 4.22% inflation rate may seem enviable compared to countries like Argentina or Turkey, which aim for nearly 30% annually. However, it poses a problem for Mexico, affecting public policy objectives and negatively impacting millions of people experiencing inflation in their daily lives. This includes food, services, and medicines.
Inflation Exceeds Banxico’s Target
The inflation rate of 4.22% falls outside the Bank of Mexico’s target range of 3%, plus or minus 1%. This breaks a positive trend that began in the second half of December 2024, when inflation first fell below 4% since March 2022, marking the start of the post-pandemic inflation spiral.
Internal and International Pressures
Domestic pressures, such as labor market conditions, service inflation, and imported goods, contribute to internal inflation. Additionally, climate-related factors and water stress also exert pressure. Globally, protectionist sentiments are rising, with trade tensions between the US and China and reconfigurations of value chains leading to potential price increases in certain product segments.
Banxico’s Policy Response
In light of these pressures and new international scenarios, the Bank of Mexico seems to be diverting its sole mandate—combating inflation—towards economic evolution and loss of economic dynamism.
Monetary Policy Decisions
This year, the Bank of Mexico has made three policy decisions, each lowering the reference interest rate by half a percentage point. The rate has dropped from 11.50% midway through the previous year to its current level of 8.50%, with another half-point reduction likely, bringing the rate to 8.00%. Real interest rates remain significantly higher than inflation, prompting the question: are 8% or 8.5% rates sufficient to curb inflationary pressures?
Prioritizing Economic Activation Over Inflation Control
The Bank of Mexico’s accompanying documents acknowledge inflation risks and economic performance issues. The balance, however, leans towards stimulating the economy rather than sending a strong message that the bank will adhere to its sole mandate.
The Role of the Mexican State in Economic Growth
While it’s true that the economic performance has been poor, with growth below 1% during the previous administration and negative PIB figures for Sheinbaum’s first half, it is not the Bank of Mexico’s responsibility to address these issues.
Separation of Responsibilities
The Mexican state has other institutions and tools for growth, such as the Secretariat of Economy, development banking, and specialized agencies focusing on agriculture, tourism, infrastructure, and even the Secretariat of Finance.
Banxico’s Role: Inflation Control
The question remains whether the Bank of Mexico should undertake tasks assigned to other entities.
Key Questions and Answers
- What is the current state of Mexico’s economy? The economy is growing at a slow pace, with GDP growth of 0.2% in the first quarter compared to the last quarter of 2025, while annualized inflation reached 4.22% in the first half of May.
- Why is the Bank of Mexico’s focus shifting? The Bank of Mexico seems to be prioritizing economic evolution and loss of economic dynamism over its sole mandate of combating inflation due to domestic and international pressures.
- What are the potential consequences of the Bank’s policy decisions? With real interest rates remaining significantly higher than inflation, there is uncertainty about whether the current rates are sufficient to curb inflationary pressures.
- Who is responsible for addressing poor economic performance? The Mexican state, through institutions like the Secretariat of Economy and development banking, should tackle growth-related issues. The Bank of Mexico’s role primarily revolves around controlling inflation.
