inflation. additionally, an accelerating rise in the producer price index also reveals an impact from peso weakening. see bis ( 2014 ). “ triennial central bank survey of foreign exchange and derivatives market activity in 2013, ” detailed tables. see shcp ( 2016 ). informes sobre la situacion economica, las finanzas publicas y la deuda publica, segundo trimestre de 2016. see bis ( 2016 ). bis statistical bulletin, june, table f2. 3. bis central bankers ’ speeches medium - term inflation expectations, as measured by analysts ’ surveys, have remained relatively stable, albeit above the target. market - derived expectations appear to show a recent spike. 8 in this context, monetary policy has been preemptive, with interest rate hikes seeking to avert deviations of inflation expectations and to anchor them on the target, particularly in the face of significant peso depreciation. the resulting flattening of the yield curve seems to reflect confidence that inflation will continue to be contained. it is worth emphasizing that the bank of mexico does not target any level of the exchange rate. its primary objective is maintaining low inflation, and mexico adheres to a freely floating exchange - rate regime. this does not mean that movements in the exchange rate have no impact on inflation. in fact, as mentioned, moderate pass - through has occurred from the exchange rate to consumer prices, concentrated in durable goods. but this may change, and monetary policy should remain vigilant. some risks to the consolidation of convergence of inflation to the 3 percent permanent target prevail. the most notable danger is more weakening of the peso with a generalized impact on prices, knocking inflation expectations off track. also, rises in noncore prices could accelerate, returning to historic rates, possibly producing second - round price effects. finally, given uncertainty on the level of potential gdp, aggregate demand pressures could surface. conclusions over the course of many years, mexico and the united states have benefited from increased integration, both cultural and economic. mexican economic activity, however, has recently decelerated and confronts downside risks, among them, the possibility that the u. s. industrial sector ’ s performance will turn out to be softer than anticipated. other dangers are weaker consumer and producer confidence, a steeper - than - expected fall in oil output, and possibly more volatile financial markets. the latter might squelch financing for the government and private firms. greater risk ave

the road through a more effective rule of law, better public security, and improvement to mexico ’ s physical infrastructure. for a discussion of the u. s. - mexico economic relationship, see villarreal, m. a. ( 2015 ). u. s. - mexico economic relations : trends, issues, and implications. washington, dc : congressional research service, pp. 1 – 9. for an online progress report on mexico ’ s structural reforms, see presidencia de la republica, reformas en accion, http : / / reformas. gob. mx. bis central bankers ’ speeches growth and financial developments let me move on to the second part of this talk, which covers shorter - term developments. on a year – on - year basis, since 2014 mexico ’ s gdp has grown at an average rate of 2. 3 percent, not far from the historical performance, with a dip occurring in the second quarter this year. behind this relatively stable backdrop in the past two and a half years, two opposing forces have been at play. momentum in services has been offset by a slowdown in industrial production. softening industrial output in mexico seems to result from two shocks. one is falling oil extraction due to the near depletion of pemex ’ s most profitable oil fields. the other is slowing u. s. industrial production. consistent with this panorama, manufacturing exports to the united states have been on the downswing, aggravating the drag exerted by low demand for mexican products from other countries. u. s. manufacturing appears to have a larger impact on mexican exports to the u. s. than does the bilateral exchange rate. econometric estimates for the long - term behavior of mexican manufacturing exports to its northern neighbor point toward an elasticity to u. s. manufacturing production almost four times as high as that for the bilateral real exchange rate. 3 however, a weaker peso may be partly responsible for the fact that mexican exports have captured greater u. s. market share. for example, in the last four and a half years, the share of mexico ’ s automotive exports in total u. s. automotive imports has increased by almost five percentage points. private consumption has been a driver of economic expansion, partly compensating for the loss of steam from external demand. consumption growth seems to have been supported by several factors, including improvement in labor market indicators. since 2012, the unemployment rate has fallen from five percent to less than