Bloomberg News

Mexico Above-Forecast Inflation Clouds Rate Cut Scenario

January 24, 2012

(Updates with comments from analysts in third paragraph.)

Jan. 24 (Bloomberg) -- Mexican consumer prices rose more than economists expected in the first half of January, further dimming speculation that the central bank will cut interest rates this year.

Prices climbed 0.32 percent, the national statistics agency said on its website today, compared with the 0.24 percent median estimate of 16 economists surveyed by Bloomberg. Core prices, which exclude food and energy, gained 0.20 percent, more than the 0.15 percent median estimate of 13 analysts.

The inflation rate has risen in each of the past three months, reaching the highest in a year in December as drought and a weaker peso fueled price increases. While the central bank said on Jan. 20 that the recent pick-up in inflation would probably be “transitory,” today’s report lessens the chance of a rate cut, said Rafael Camarena, an economist at Banco Santander SA in Mexico City.

“This should worry the central bank,” Camarena said. “This inflation data would not favor the central bank’s willingness to cut rates.”

The central bank left its benchmark rate unchanged a record low of 4.5 percent for a 24th meeting last week, citing a slowdown in economic growth in the fourth quarter and a neutral outlook for inflation.

While the weaker peso has fueled increases in the cost of some tradable goods, there is no evidence of that pushing up prices of other goods and services, the bank said.

Bond Yields

Yields on the nation’s fixed-rate peso bonds maturing in December 2013 climbed two basis points, or 0.02 percentage point, to 4.81 percent at 10:50 a.m. in Mexico City.

Today’s inflation report showed that fruit and vegetable costs rose 1.19 percent and merchandise climbed 0.50 percent in the first half of January, Inegi said.

The past few higher-than-expected inflation figures don’t provide “enough reasons to hike, but won’t allow Banxico to cut,” said Gabriel Casillas, chief Mexico economist at JPMorgan Chase & Co.

Consumer prices leaped 0.82 percent in December from the month before, pushing annual inflation to 3.82 percent from 3.48 percent.

Economic expansion will slow to about 3.5 percent this year from an estimated 4 percent last year, Finance Minister Jose Antonio Meade said Jan. 5.

The peso was little changed at 13.1724 per U.S. dollar at 10:51 a.m. in Mexico City, from 13.1685 yesterday. Mexico’s currency has fallen 11.7 percent in the past six months, the second-worst performer of major Latin American currencies tracked by Bloomberg after Brazil’s real.

Central bank policy makers, who target inflation at 2 percent to 4 percent, next meet March 16.

To contact the reporter on this story: Nacha Cattan in Mexico City at

To contact the editor responsible for this story: Joshua Goodman at

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