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Inflation in March stood at 5.56% year-on-year, driven by the rebound in food prices due to the rainy season and by persistent pressures in services associated with the minimum wage. Inflation is expected to close the year at 6.5%, amid these pressures and additional climate and geopolitical risks.

In Banxico's monetary policy statement of March 26, 2026, two messages coexist: on the one hand, the forecasts for headline and core inflation are adjusted upwards between 1Q26 and 3Q26 with a balance of risks having an upward bias; on the other hand, the Board of Governors reduces the reference rate by 25 basis points.

Consumer prices inflation came in at 1.94% m/m in March, below both our (2.2%) and market (2.3%) expectations, bringing annual inflation down to 30.87%. However, rising energy prices, ongoing geopolitical uncertainty, and adverse supply-side factors are reinforcing upside risks to the inflation outlook.

Inflation in Lima Metropolitana registered a historical increase of 2.38% month-over-month in March. This increase, the largest in 32 years, raised the year-over-year rate to 3.8%, surpassing the upper limit of the Central Bank's target range due to climate and energy factors.

Looking ahead, we think the timing of the final rate cut will depend on external conditions. Under our baseline of a short-lived conflict, and with Banxico’s test for second-round effects from this year’s fiscal changes now met, most Board members may prefer to wrap up the easing cycle and deliver a final 25bp cut in May.

If inflation expectations remain well anchored, a pause driven by a supply-driven shock could prove counterproductive given policy lags, potentially leaving the stance tighter than desired once these pressures dissipate.

The quote “it is difficult to make predictions, especially about the future” is attributed to Niels Bohr. Today, it is even more so in an environment of high uncertainty. The increase in costs caused by the war between the U.S. and Israel against Iran will have negative effects on the Spanish economy.