Banxico Minutes: Most members stated that the global economic environment has continued to be characterized by a high degree of uncertainty, mainly associated with the persistence and potential escalation of geopolitical conflicts

Growth

• Most members mentioned that, according to the  GDP flash estimate, economic activity in Mexico  contracted at a seasonally adjusted quarterly rate  of 0.77% during the first quarter of 2026. They  stated that this contraction was notably greater  than anticipated. 
• Most members indicated that the contraction of economic activity was the result of declines across its three major sectors. They stated that industrial activity exhibited sluggishness, while manufacturing weakened further
• Most members noted that domestic demand remained sluggish. They pointed out that private consumption weakened significantly in the first bimester of 2026. 
• Regarding external demand, most members noted that it shows significant resilience
• Most members pointed out that slack conditions are expected to continue widening
• Regarding the outlook for the remainder of 2026,  some members indicated that a more moderate  recovery is expected than previously anticipate

Labour

• Most members noted that the labor market continued exhibiting signs of cooling.
• Most members asserted that, while the unemployment rate remains at historically low levels, its behavior is partly due to the decline in the labor force participation rate

Inflation

• Most members pointed out that between the first fortnight of March and the month of April 2026, headline inflation decreased from 4.63 to 4.45% due to a decline in its core component
• Most members commented that, as expected, there is no evidence of second-round effects on headline inflation resulting from the tax measures adopted at the beginning of the year. They added that these measures led to one-off adjustments in the relative prices of goods directly affected by changes in the Special Tax on Production and Services
• Regarding the tariff measures introduced at the beginning of the year, all members observed that, so far, there has been no impact on inflation. 
• They mentioned that the non-core component remains affected by the transitory impact of high fruit and vegetables prices.
• Most members underlined the persistence of services inflation

Dissenting commentary

Vote. Galia Borja 

• Despite the behavior of the conventional determinants of inflation, such as economic activity and the exchange rate, a sequence of supply shocks that have accumulated over the year, in addition to the unexpected conflict in the Middle East, whose duration, magnitude and implications remain uncertain, have contributed to a more complex environment for price formation. Moreover, the notable persistence of services inflation and the unfavorable base effects during the second half of the year, would lead to a slower decline of inflation towards the 3% target. In this context, I consider that lowering the rate could hinder the process of convergence. In my opinion, adopting a cautious approach and maintaining the current policy stance is adequate to, looking ahead, have more information that allows us to assess more accurately the inflationary outlook and the determinants of inflation, in order for Banco de México to fulfill its primary mandate of ensuring the Mexican currency’s purchasing power and, thus, contribute to our country’s growth and development.

Vote. Jonathan Heath

• Over the last year, we have been constantly facing the persistence of core inflation, a balance of risks biased to the upside, and a weak downward effect of inflation’s conventional determinants. In the absence of a sustained reduction of its core component, inflation has been subject to different shocks on agricultural and livestock prices, the military conflicts, and fiscal adjustments. The neutral monetary policy stance that has been attained, the narrow margin for further reference rate cuts and for reducing the differential with respect to external rates, along with an elevated uncertainty, justify a pause. The latter, in order to assess if the current stance is sufficient to reinforce the downward trajectory of inflation towards the 3% target. Said analysis will not only depend on the current inflationary shocks dissipating, but on inflation expectations stabilizing at levels closer to our target and on core inflation stabilizing sustainably as well. Having achieved this, we will have an inflationary environment consistent with monetary neutrality. Attaining these goals takes time and therefore the proposed pause should be, in principle, of extended duration.