Mexico's Inflation Accelerates for 4th Month in a Row Juan Montes - Dow Jones
go to original September 7, 2012

MEXICO CITY - Mexico's annual inflation accelerated in August for a fourth consecutive month, rising further above the central bank's target range, but no rate action is expected in the near future as the uptick is considered to be temporary.

The consumer price index was up 4.57% last month from a year earlier, compared with 4.42% at the end of July, Mexico's national statistics agency said Friday. The figure came in slightly above the 4.55% increase expected by analysts.

Monthly CPI rose 0.30% versus July, pressured by higher merchandise prices due to a weaker peso. Higher agricultural prices also weighed, with the cost of eggs rising 11% following a bird-flu outbreak in the country.

The Bank of Mexico has said the recent inflation uptick is a temporary and limited supply shock, mainly caused by volatile prices for 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 interest rate unchanged at 4.5% since July 2009.

Annual inflation has been continuously rising since May, when volatile vegetable and fruit prices jumped due to the severe drought in the north of Mexico and in the U.S., and then followed by the bird-flu outbreak.

Core CPI, which excludes energy and fresh fruit and vegetables, rose 0.22% in August, pushing the annual rate up to 3.70% from 3.59% at the end of July. The core index is closely watched by the central bank because it better reflects underlying inflationary pressures.

Merchandise prices ticked up 0.39% compared to a broadly flat performance last year as the peso's depreciation, which makes imports more expensive, is starting to have some impact, according to economists. The peso traded in August at an average exchange rate of MXN13.15 to the dollar, versus MXN12.25 in August 2011.

Higher inflation makes it increasingly difficult for the central bank to cut rates, a possibility it had hinted at earlier this year. But in a context where major developed and emerging economies are implementing very accommodative monetary policies, a rate increase also seems unlikely.

The Bank of Mexico will announce its latest monetary policy decision today at 10 a.m. EDT. Most economists see the central bank on hold in the foreseeable future, with the next move likely happening in late 2013 or in 2014.

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

We invite you to add your charity or supporting organizations' news stories and coming events to PVAngels so we can share them with the world. Do it now!