Analysts Warn Banxico’s Forward Guidance Is Wearing Thin as Inflation Takes Longer to Cool
The debate over the credibility of the Bank of Mexico (Banxico) has moved back to the forefront after Ernesto Revilla, Citi’s chief economist for Latin America, said Mexico’s monetary policy has lost some of its ability to anchor expectations. Speaking at an economic outlook seminar at ITAM, Revilla argued that repeatedly pushing back the timeline for inflation to return to the 3% target (+/- 1 percentage point) has undermined market confidence in the central bank’s forecasts.
According to Citi estimates presented at the event, inflation would end 2026 at 4.2%, which would effectively mean an extended period above target. For Revilla, the more concerning figure is core inflation—which excludes volatile prices such as energy and agricultural products—projected at 4.4% by the end of 2026. Core inflation is typically seen as a more reliable gauge of persistent inflation pressures and of how expectations are formed among households and businesses.
The remarks come at a time when headline inflation has shown bouts of moderation, but with clear stickiness in services. The end of 2025, as presented in the seminar, would have posted annual inflation of 3.7%, below what consensus had anticipated; however, core inflation accelerated to 4.33%, driven by increases in goods and, above all, by the persistence of services inflation. This pattern matters because services prices tend to respond more to labor costs and inflation inertia than to temporary shocks.
At the same event, Carlos Capistrán, Bank of America’s chief economist for Latin America and Canada, agreed that the main challenge is keeping inflation within the target range. In his view, elevated services inflation could be tied to wage increases that have not been matched by comparable gains in productivity—an especially sensitive issue in Mexico, where informality and efficiency gaps across sectors continue to weigh on potential growth.
Looking to early 2026, analysts pointed to factors that could introduce one-off price pressures: adjustments to the IEPS excise tax, tariff changes on imports from countries without a trade agreement, and another increase in the minimum wage. Revilla emphasized that recent minimum-wage hikes could pass through more forcefully to inflation, as the minimum wage has expanded its effective coverage and reached broader segments of the formal labor market. In Mexico, the minimum wage also often serves as an indirect benchmark for negotiations across different pay scales, raising the risk of second-round effects when inflation is already high.
Communication is also part of the story. Revilla argued that by repeatedly revising its convergence timelines back to 3%, Banxico has incurred a reputational cost: if market participants believe the central bank’s projections are losing predictive power, inflation expectations may stop aligning with the target. This is critical because under an inflation-targeting regime, credibility acts as a “shock absorber”—it reduces the need for more aggressive rate moves in response to shocks and helps keep temporary increases from becoming permanent.
At the same time, the monetary-policy dilemma is becoming more complex due to the broader macro backdrop. Mexico enters 2026 with a mixed outlook: on one hand, nearshoring and manufacturing integration with the United States continue to provide an anchor for investment in certain industrial corridors; on the other, growth has been moderate and uneven across regions, while the fiscal balance faces pressure from higher spending needs, debt-service costs, and infrastructure priorities. In that context, core inflation above 4% tends to limit room to loosen monetary conditions without reigniting price pressures.
Bank of America, according to the discussion, expects Banxico could deliver four additional cuts to the policy rate over the year, bringing it to around 6% by the end of 2026. That scenario assumes disinflation advances enough and that there is no sharp peso depreciation or major external shocks. Still, the room to cut also typically depends on the interest-rate differential with the United States and on flows into emerging markets; if the Federal Reserve keeps rates higher for longer, Banxico may choose to be more cautious to avoid exchange-rate volatility that could feed into prices.
Over the next few quarters, the key focus will not be just the headline inflation print, but also the path of core inflation and services, as well as medium- and long-term expectations. In Mexico, Banxico’s credibility has historically been a meaningful asset for stabilizing prices and financial markets; as a result, any perception of “de-anchoring” tends to show up in risk premia, the yield curve, and the exchange rate’s sensitivity to domestic and external news.
In sum, the debate raised by Citi and Bank of America points to the same concern: inflation is easing, but not enough in its more persistent components, and the central bank’s communication faces the challenge of re-anchoring expectations without unnecessarily slowing activity. The evolution of services, wages, and productivity—along with fiscal decisions and the external environment—will determine whether Banxico can cut rates in an orderly way without sacrificing its main asset: confidence in its commitment to the inflation target.
