Bloomberg News

Mexico Inflation Exceeds 4% as Banxico Signals Rates on Hold

March 22, 2013

Mexico Inflation Quickens More Than Forecast, Exceeds Target

Pedestrians walk in front of the Banco de Mexico building in Mexico City. Photographer: Susana Gonzalez/Bloomberg

Mexican inflation unexpectedly climbed above its target range as the central bank signaled it doesn’t plan to further cut borrowing costs to spur growth. The peso rallied.

Consumer Prices rose 0.52 percent in the two weeks through March 15, the national statistics agency said today, almost twice the 0.28 percent median forecast of 15 economists surveyed by Bloomberg. Annual inflation quickened to 4.12 percent, the highest since the first half of November and above the upper end of the central bank’s 2 percent to 4 percent target range.

Policy makers anticipated the inflation pickup, saying it would be temporary before slowing toward their 3 percent target, according to minutes of the central bank’s March 8 meeting released today. The central bank cut its key rate by 0.5 percentage point to a record-low 4 percent this month on a four- to-one vote, with the dissenter saying lower rates could threaten the target, the minutes showed. The bank reiterated that the cut wasn’t the start of an easing cycle.

“Any market hopes that the central bank could change its view in the near-term about the one-off nature of the rate cut will probably be weakened after today’s inflation print,” Alonso Cervera, an economist at Credit Suisse Group AG, said in an e-mail. “Now it is likely inflation in March and April will be higher than the central bank was expecting.”

The peso strengthened 0.4 percent to 12.3802 per U.S. dollar at 1:30 p.m. in Mexico City. Yields on fixed-rate government bonds due in December 2013 rose three basis points, or 0.03 percentage point, to 4.06 percent. Yields on inflation- linked bonds maturing in 2014 fell six basis points to 0.76 percent.

Core Inflation

Agriculture and livestock prices climbed 12.37 percent in the first half of March from the same period a year earlier, while energy costs increased 5.97 percent.

Core inflation, which excludes more volatile energy and agriculture prices, rose 0.26 percent in early March, compared with the 0.17 percent median forecast by 14 economists surveyed by Bloomberg, and at a 3.06 percent annual rate.

The benchmark rate cut came after the inflation had slowed to within the central bank’s target range in December and growth moderated. Mexican industrial production and retail sales fell in December, the first declines in each indicator since Mexico emerged from the 2009 recession. Growth, which exceeded Brazil’s the past two years, will slow to 3.5 percent this year, the least since 2009, from 3.9 percent in 2012, according to the median forecast of economists surveyed by Bloomberg. Brazil is projected to grow 3.4 percent this year.

Split Decision

The split decision is the first for Banco de Mexico since it began publishing minutes from monetary policy decisions in February 2011.

Central bank board member Manuel Sanchez said in a Feb. 27 interview that he didn’t see a case for a rate cut “at this moment” as inflation remains above the 3 percent target. Monetary policy should “remain vigilant” to risks including food-price increases and financial weakness abroad that could crimp investment in Mexican assets and hurt the peso, he said. Reaching a consensus isn’t a “prerequisite” for a rate decision, Sanchez said.

The minutes show that Finance Minister Luis Videgaray and Deputy Finance Minister Fernando Aportela attended the central bank’s board meeting.

A separate report from the statistics agency said today Mexico’s unemployment rate fell to 4.85 percent in February, below all 15 estimates in a Bloomberg survey.

To contact the reporters on this story: Eric Martin in Mexico City at emartin21@bloomberg.net; Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net


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