BofA raises Mexico inflation forecast, sees limited Banxico rate cuts
Investing.com - Bank of America has revised its inflation forecasts for Mexico upward following the incorporation of June’s inflation data. The bank now expects headline inflation to reach 4.6% year-over-year by the end of 2025, up from its previous forecast of 4.5%, while maintaining its projection of 3.5% by the end of 2026.
Core inflation forecasts have also been adjusted upward, with BofA now anticipating 4.4% year-over-year by the end of 2025, revised from 4.3% previously. For 2026, the bank expects core inflation to reach 3.9%, up from its earlier projection of 3.8%.
BofA cites upside pressures on core inflation that will likely keep it elevated throughout the remainder of this year. However, the bank believes weak economic activity and a strong peso will contribute to bringing core inflation down in 2026.
The elevated core inflation presents a risk to Banco de Mexico’s (Banxico) rate-cutting plans in the short term, as the central bank has adjusted its forward guidance to signal more caution. BofA expects Banxico to implement a 25 basis point cut in August before pausing for the remainder of the year, bringing the rate to 7.75% by year-end.
BofA forecasts core inflation will peak at 4.5% in November before declining below 4.0% in 2026, which, combined with anticipated Federal Reserve cuts in 2026, could create conditions for additional Banxico rate cuts next year, potentially reaching 6.75% by the end of 2026.
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