Bloomberg News

Mexico First Half June CPI Unexpectedly Falls 0.05% on Food

June 23, 2011

(Updates to add economist comment in fourth paragraph.)

June 23 (Bloomberg) -- Mexico’s consumer prices unexpectedly declined in the first half of June, dragged down by food and beverage costs in Latin America’s second-biggest economy.

Prices fell 0.05 percent in the first two weeks of the month, the central bank said in a report posted on its website today. Economists forecast a 0.11 percent rise, according to the median estimate of 14 analysts surveyed by Bloomberg.

Controlled prices are allowing the central bank to keep borrowing costs at a record low as the recovery of the domestic economy lags the export sector, according to Sergio Martin, an economist at the Mexico unit of HSBC Holdings Plc.

“There are no inflationary pressures that could make the central bank raise rates,” Martin said in a telephone interview from Mexico City. The report “was much more positive than what you could have expected.”

Core prices, which exclude energy and food costs, rose 0.04 percent. Food and beverage prices fell 0.40 percent.

The peso weakened 0.8 percent to 11.8901 per U.S. dollar at 11:00 a.m. New York time.

Mexico’s policy makers, led by Central bank Governor Agustin Carstens, extended the bank’s longest-ever interest rate pause on May 27, voting unanimously to keep the benchmark lending rate in Latin America’s second-largest economy at 4.5 percent for a 19th straight meeting.

Peso Rally

Among the major Latin American countries that target inflation, only Mexico has yet to raise rates in the past year. Policy makers said inflation should remain within the target range of 3 percent to 4 percent this year, according to the minutes of the meeting published June 10.

Mexico’s exchange rate is helping to keep a lid on prices, according to the economist Martin. The peso is up 10 percent since the end of 2009, the biggest advance among Latin American currencies tracked by Bloomberg after the Colombian peso. A stronger currency brings down prices by making imports cheaper.

Mexico’s unemployment rate rose 5.2 percent in May, the national statistics agency said today in a separate report. Economists expected a jobless rate of 4.9 percent, according to the median of 13 estimates compiled by Bloomberg.

Mexico’s central bank will next increase the nation’s benchmark lending rate in March 2012, according to the median estimate of 21 economists in a survey e-mailed June 20 by Banamex, Citigroup Inc.’s local unit.

Mexican retail sales rose 4.9 percent in April from last year, the country’s statistics agency said yesterday on its website.

Industrial production rose 1.4 percent in April from a year earlier, the institute said in a June 13 report.

Consumer prices will rise 3.67 percent in 2011, according to the central bank’s monthly survey of economists, down from a forecast of 3.87 percent last month. The economy will expand 4.37 percent in 2011, according to the survey published June 1.

--With assistance from Jose Enrique Arrioja in Mexico City. Editors: Bill Faries, Robert Jameson

To contact the reporter on this story: Jonathan J. Levin in Mexico City at jlevin20@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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