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Inflation in May came in line with BBVA Research expectations and continued its upward trend, reaching 5.84% year-on-year, representing an increase of 16 basis points (bps) compared to April and 74 bps relative to the end of last year.

After moderating in April, expectations for Fed rate hikes, as implied by the 2-year Treasury yield, strengthened again in May, driven by uncertainty surrounding the prolonged conflict in the Middle East, resilient economic activity, and the Fed’s hawkish tone adopted in its latest policy decision.

Headline inflation slowed to 3.2% year-on-year, driven primarily by energy prices and, to a lesser extent, services. Meanwhile, core inflation moderated to 2.8%. However, BBVA Research estimates that headline inflation could rise to 3.4% or 3.5% in May.

Inflation continued its upward trend in April, reaching 5.68% YoY, driven by food and regulated items. We expect inflation to continue increasing to 6.5% by year-end, due to climate-related shocks, the minimum wage increase, strong domestic demand, and other risks.

We expect Banxico to wrap up the easing cycle this week with a 25bp rate cut, taking the rate to 6.50%, followed by a prolonged pause lasting at least through the rest of the year; the Board will likely convey that it will take some time to assess the cumulative effects of the easing cycle.

Lima's CPI rose 0.52% m/m in April, above the Bloomberg consensus (0.20%) but moderating from March's 2.38%. Annual inflation reached 4.01%, exceeding 4% for the first time since October 2023, driven by the persistent pass-through of the energy shock to transport costs.

The El Niño phenomenon in Colombia, with a probability close to 90% by September 2026, would bring drought conditions and higher temperatures. This climate shock would affect food supply and increase electricity generation costs, leading to temporary inflationary pressures in the economy.