Mexico’s Economy Slows as Inflation Surprises and Central Bank Cuts Rates

Mexico’s economy is slowing as inflation rises and the central bank implements interest rate cuts, according to official data released in late April 2025.

The annual inflation rate reached 3.96% in early April, surpassing the 3.85% median forecast and the previous reading of 3.93%. Core inflation, excluding food and energy, increased to 3.9% from 3.72% in late March.

Both figures remain within the Bank of Mexico’s 3% target range, which allows a one percentage point margin on either side. Despite inflation staying within target, economic activity is weakening.

Real GDP contracted by 0.6% quarter-on-quarter in the final quarter of 2024, contributing to a technical recession. Year-over-year growth slowed to approximately 1% in the same period, down from 2.4% in 2023 and 3.9% in 2022.

Analysts project subdued GDP growth for 2025, with estimates ranging from 0% to 1.5%, reflecting cautious expectations amid trade uncertainties. Industrial production grew modestly, while retail sales weakened.

Mexico’s Balancing Act

Employment gains were moderate but below historical averages. The peso strengthened slightly, supported by rate cuts, and remittances remained significant, though their growth slowed due to external pressures.

Inflation ticked up in March and April after months of stability, driven by pressures in food and energy prices. The Bank of Mexico responded by cutting its benchmark interest rate by 50 basis points to 9.0% in March 2025, following a similar cut in February.

Policymakers signaled a potential additional 50-basis-point reduction at the May meeting if inflation trends downward. The central bank aims to support the weakening economy while keeping inflation expectations anchored.

This environment underscores the challenges of balancing inflation and growth amid shifting trade conditions, including U.S. tariff threats and global economic risks.

The central bank’s cautious approach reflects the uncertainty facing Mexico’s economy as it strives to maintain stability and investor confidence. Businesses and markets remain vigilant for further signals from policymakers.

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