Mexico Quarterly Inflation Report: Weaker Real Activity Outlook

Banxico's 1Q26 Inflation Report downgraded 2026 growth forecasts to 1.1% and projected a widening negative output gap, signaling a dovish lean. Goldman Sachs expects the bar for further rate cuts to remain low given the MPC's focus on growth over inflation.

Key Takeaways

• 1.Banxico downgraded the 2026 real GDP growth forecast by 50bp to 1.1%, primarily due to a weaker-than-expected first quarter.
• 2.The negative output gap is projected to widen significantly, reaching -2.7% of GDP by the end of 2027.
• 3.Analytical studies within the report provide dovish signals, suggesting tax-related price increases were one-off and geopolitical shocks may eventually lead to lower rates.

Table of Contents

• DETAILS:
• Labor Market More Resilient (Tight; No Slack) than Consumption Markets
• Output Gap in Negative Territory in 2025-2027
• Disclosure Appendix

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