Mexico Inflation Below Expectations in Beginning of September Juan Montes - Dow Jones
go to original September 25, 2012

MEXICO CITY - Mexico's consumer prices rose much less than expected in early September, but persistently higher food prices kept the annual inflation rate above the central bank's target.

The consumer price index was up 4.73% as of mid-September from the year earlier, compared with 4.57% at the end of August, but it came in below the 4.83% increase expected by analysts.

CPI in the first two weeks of the month rose 0.25%, as lower fixed-phone tariffs tumbled 7%, partially offsetting higher agricultural prices. Egg prices kept their rising trend and jumped 5% following a recent bird-flu outbreak in the country.

Amid rising prices, the Bank of Mexico opened the door for a possible rate increase in its latest policy decision. However, minutes from the latest policy meeting showed Friday there is division among board members over the urgency of raising rates to counter above-target inflation.

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.

Core CPI, which excludes energy and fresh fruit and vegetables, rose 0.12% in the first half of September, pushing the annual rate down to 3.6% from 3.7% at the end of August. The core index is closely watched by the central bank because it better reflects underlying inflationary pressures.

Nonfood goods prices ticked up 0.17%, about the same as the same period of last year, as the peso's recent appreciation, which makes imports cheaper, likely started to have some impact.

The recent peso strengthening adds to the case that the bank will stay on hold. Also, in a context where major developed and emerging economies are implementing very accommodative monetary policies, and world growth prospects are becoming darker, a rate increase seems unlikely.

Most economists see the central bank leaving rates unchanged 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

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