Mexico's Annual Inflation Seen at 4.48% in Early August Juan Montes - Dow Jones
go to original August 20, 2012

MEXICO CITY - Mexico's annual inflation likely kept rising in early August, moving further above the central bank's 4% target ceiling, pressured by higher food prices and the peso's recent depreciation.

The consumer price index is expected to have risen to 4.48% year-on-year in the first two weeks of August from 4.42% at the end of July, according to the median estimate in a Dow Jones Newswires survey of 14 economists. That would be the highest level since March 2010.

Monthly CPI probably rose 0.17% in the period, mainly due to higher vegetable and fruit prices. "We believe rising food prices, and more specifically egg prices, could lead to another upward surprise," said UBS economist Javier Kulesz.

The National Statistics Institute, or Inegi, is scheduled to report inflation for the first half of August on Thursday at 9 a.m. EDT.

The Bank of Mexico has said the inflation uptick is a temporary and limited supply shock, caused by volatile agricultural products. The bank sees no need to raise interest rates as there are no generalized pressures on prices and inflation is expected to be back below 4% by year-end.

The Mexican central bank's inflation target is 3%, with a deviation of one point above or below. The bank has kept its reference rate unchanged at 4.5% since July 2009.

Core CPI, which excludes energy and fresh fruit and vegetables, is expected to have risen 0.14% in early August, pushing the annual rate up to 3.7% from 3.6% at the end of July. That would be the highest reading since August 2010.

The core inflation rate, closely watched by the central bank because it better reflects underlying inflationary pressures, is seen partially affected by the weaker peso, which makes imports more expensive. The Mexican currency has lost 4% against the U.S. dollar since mid-March.

Write to Juan Montes at juan.montes@dowjones.com

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