Bloomberg News

Mexico Early August Consumer Prices Rise Less Than Forecast

August 23, 2012

Mexico’s consumer prices rose less than expected in early August, while annual inflation remained above the central bank’s target range, reinforcing expectations policy makers will keep interest rates on hold.

Prices climbed 0.14 percent in the first two weeks of August, pushing annual inflation to 4.45 percent from 4.42 percent at the end of July, the national statistics agency said on its website today. The median estimate of 17 analysts surveyed by Bloomberg was for prices to increase 0.17 percent.

The annual inflation rate climbed to a 28-month high in July as a bird-flu outbreak and drought pushed food prices, including poultry, eggs and corn. Policy makers say the increase will slow to their target range of 2 percent to 4 percent by year-end, while economists see inflation ending the year at 4 percent, according to a survey by Citigroup Inc.’s Banamex unit. Egg prices rose 4.07 percent in the first two weeks of August, compared with 15.2 percent in July, today’s report showed.

“The increase in the price of eggs was much more moderate than what might have been feared,” Alonso Cervera, an economist at Credit Suisse Group AG, said in a phone interview from Mexico City. “The annual inflation figure is very close to the scenario predicted by the central bank for the third quarter.”

The central bank, led by Governor Agustin Carstens, kept its key interest rate at 4.5 percent on July 20, saying short- term risks to inflation had increased while mid-term risks had lessened on the worsening outlook for the global economy.

Egg Prices

Mexico’s Economy Ministry yesterday said the government plans to permit the duty-free import of eggs to lower prices after they soared due to speculation following a bird flu outbreak in the western state of Jalisco.

“This measure is intended to stabilize the market, complement the current supply, reduce the price and guarantee the delivery of the product to the public,” Economy Minister Bruno Ferrari said at a press conference yesterday.

Carstens said in a July 26 interview that the effects of higher food prices will be temporary and isolated, allowing inflation to return to the bank’s target range in the fourth quarter. A 1.76 percent drop in the price of fruits and vegetables in the first two weeks of August helped offset the increase in egg prices, Cervera said.

Core inflation climbed 0.16 percent in the first two weeks of August, matching the median estimate of economists surveyed by Bloomberg, and at a 3.7 percent annual rate, today’s report showed.

Market Reaction

The peso maintained its loss after today’s report, falling 0.7 percent to 13.1655 per dollar at 9:22 a.m. in Mexico City. The peso has strengthened 5.9 percent this year, the steepest advance among 16 currencies tracked by Bloomberg.

Yields on inflation-linked bonds due in 2013, known as Udibonos, fell two basis points to 0.27 percent, according to data compiled by Bloomberg.

Corn prices have soared as the La Nina weather pattern triggered excessive heat and dryness in parts of Brazil, Argentina and Mexico at the beginning of the year, damaging crops. The worst drought since 1956 in the U.S., the world’s largest corn producer and exporter, has also driven up corn costs.

To contact the reporter on this story: Eric Martin in Mexico City at emartin21@bloomberg.net.

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net.


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