Banxico board weighs global risks, inflation path

The Governing Board noted the global economy continues to feel the effects of the Middle East conflict, despite a temporary ceasefire and negotiations aimed at reopening the Strait of Hormuz.

While recent agreements between the US and Iran have moderated concerns over energy supply and reduced international oil prices, members cautioned that repercussions remain uncertain, depending on the time needed to restore trade and energy production.

Some highlighted that a geopolitical risk premium is likely to persist, with potential for renewed tensions.

Global economic activity in Q2 2026 expanded at a similar pace to the prior quarter, with advanced economies showing a heterogeneous rebound.

US growth, driven by private consumption and tech-sector investment, outpaced most advanced economies, while projections for the Euro area and China were revised downwards.

Global headline inflation continued to rise in major economies, largely due to energy prices, though the impact on core inflation remained limited, suggesting an absence of second-round effects.

US CPI inflation increased from 3.3 percent in March to 4.2 percent in May, with core inflation rising from 2.6 percent to 2.9 percent over the same period, driven by services.

Globally, many central banks held their reference rates, while the ECB and Bank of Japan increased theirs, and Brazil and Russia reduced theirs.

The Federal Reserve maintained the federal funds rate in June, with new projections showing a slightly higher inflation and rate trajectory for 2026, but lower rates for 2027, signaling a transitory inflation peak.

The Fed also implemented significant communication changes, including eliminating forward guidance and shortening its announcement, while emphasizing price stability.

International financial markets reacted favorably to Middle East peace agreement advances, though the dollar appreciated against other currencies on expectations of higher US rates.

Government bond yields showed mixed movements.

Domestically, the Mexican economy is expected to expand in Q2 2026 after a prior contraction, with the IGAE recording a 1.2 percent monthly increase in April, its largest in five years.