Bloomberg News

Mexican CPI-Linked Bonds Advance as Inflation Rises Above Target

June 22, 2012

Mexican bonds tied to consumer prices advanced after a report showed annual inflation jumped above the 4 percent ceiling in the government’s target range.

Yields on inflation-linked bonds, known as Udibonos, due in December 2013 fell one basis points, 0.01 percentage point, to 0.22 percent at 4 p.m. in Mexico City, according to data compiled by Bloomberg. The yield has fallen 19 basis points this week. The peso advanced 0.4 percent to 13.8624 per U.S. dollar, resulting in a 0.4 percent gain this week.

Prices rose 0.24 percent in the first two weeks of June, pushing annual inflation to 4.30 percent, from 3.85 percent in May, the national statistics agency said on its website today. Mexican policy makers were unanimous in their decision to keep the benchmark interest rate unchanged this month, according to the minutes of the meeting published today on the bank’s website.

“The annual inflation rate has started to rise and this is what the market is seeing, in particular with Udibonos,” Rafael Camarena, an economist at Banco Santander SA (SAN) in Mexico City, said in a telephone interview. While inflation will end the year below the upper limit of the government’s target range, “in the coming months we’re going to have inflation like we’re seeing now,” he said.

Banco de Mexico’s target range for annual price increases is 3 percent, plus or minus one percentage point. Central bank board members said in the minutes they see inflation this year and next at between 3 percent and 4 percent.

Inflation accelerated for the first time in four months in May as the peso weakened 9.5 percent in the month, the worst performance of the major Latin American currencies tracked by Bloomberg.

To contact the reporter on this story: Ben Bain in New York at bbain2@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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