Mexican Inflation Reaches 1 1/2 Year High in July Reuters
go to original July 24, 2012

Mexican annual inflation accelerated in early July, pushing the rate further above the central bank's upper target threshold of four percent, though fears of a global downturn should help dampen any pressure to tighten monetary policy.

Data from the national statistics agency on Tuesday showed annual Mexican inflation quickened to 4.45 percent during the first half of July, its highest level in just over 1 1/2 years, and up from a 4.34 percent rate at the end of June.

A Reuters poll projected a 4.33 percent annual rate in early July.

The Mexican central bank held its benchmark interest rate steady on Friday as it eyed the spike in inflation. But it noted a growing risk of a global economic slowdown, suggesting policymakers may keep rates on hold for now.

The cost of living rose faster than expected in early July as some food prices in Latin America's second biggest economy jumped during an outbreak of avian flu in western Mexico.

Consumer prices rose 0.39 percent during the first half of this month, outpacing a Reuters poll forecast for an increase of 0.29 percent. The closely watched core price index, which strips out some volatile food and energy prices, climbed 0.20 percent versus 0.15 percent seen in the survey.

Yields in short-term interest rate swaps edged up after the data as investors dialed back from bets that priced in a partial chance for an interest rate cut next year.

Goldman Sachs economist Alberto Ramos said the relative price of goods versus services was still increasing due to the recent depreciation in the peso currency, but he saw no signs of second-round effects on other prices in Mexico.

"At this stage, there is no strong evidence of either demand-pull or labor market-driven cost-push pressures on inflation," Ramos said in a note to clients.

Mexico's statistics agency said the latest rise was spurred by a jump in prices of chickens and eggs, which have risen due to an outbreak of avian flu in the big western state of Jalisco. Egg prices went up 15.76 percent in the two-week period.

Mexican annual inflation accelerated in early July, pushing the rate further above the central bank's upper target threshold of four percent, though fears of a global downturn should help dampen any pressure to tighten monetary policy.

Data from the national statistics agency on Tuesday showed annual Mexican inflation quickened to 4.45 percent during the first half of July, its highest level in just over 1 1/2 years, and up from a 4.34 percent rate at the end of June.

A Reuters poll projected a 4.33 percent annual rate in early July.

The Mexican central bank held its benchmark interest rate steady on Friday as it eyed the spike in inflation. But it noted a growing risk of a global economic slowdown, suggesting policymakers may keep rates on hold for now.

The cost of living rose faster than expected in early July as some food prices in Latin America's second biggest economy jumped during an outbreak of avian flu in western Mexico.

Consumer prices rose 0.39 percent during the first half of this month, outpacing a Reuters poll forecast for an increase of 0.29 percent. The closely watched core price index, which strips out some volatile food and energy prices, climbed 0.20 percent versus 0.15 percent seen in the survey.

Yields in short-term interest rate swaps edged up after the data as investors dialed back from bets that priced in a partial chance for an interest rate cut next year.

Goldman Sachs economist Alberto Ramos said the relative price of goods versus services was still increasing due to the recent depreciation in the peso currency, but he saw no signs of second-round effects on other prices in Mexico.

"At this stage, there is no strong evidence of either demand-pull or labor market-driven cost-push pressures on inflation," Ramos said in a note to clients.

Mexico's statistics agency said the latest rise was spurred by a jump in prices of chickens and eggs, which have risen due to an outbreak of avian flu in the big western state of Jalisco. Egg prices went up 15.76 percent in the two-week period.

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