Inflation in Mexico Seen Rising Above Ceiling for Fifth Month in a Row Juan Montes - Dow Jones
go to original October 8, 2012

MEXICO CITY - Mexico's annual inflation likely kept accelerating in September, marking five consecutive months of rises and moving further above the central bank's 4% target ceiling.

The consumer price index is expected to have risen last month to 4.78% year-over-year from 4.57% at the end of August, according to the median estimate in a Dow Jones survey of 16 economists. That would be the highest level since March 2010.

Rising inflation already has led the Bank of Mexico to open the door for an interest-rate increase. But the central bank has stated clearly that action will happen only if wider demand-side price pressures start to emerge, or if midterm expectations move out of control. The recent uptick in prices is considered to be a temporary and limited supply shock caused by volatile agricultural products.

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

The CPI probably rose 0.45% in September from August, mainly due to persistently higher vegetable and fruit prices, as the severe drought affecting the U.S. is taking a heavy toll on critical food commodities.

The National Statistics Institute, or Inegi, is scheduled to report inflation for September on Tuesday at 9:00 a.m. EDT.

Core CPI, which excludes energy and fresh fruit and vegetables, is expected to have risen 0.19% in the period, pushing the annual rate down to 3.62% from 3.7% at the end of August. That would be the first year-over-year decline since March, likely giving the Bank of Mexico another argument against hiking rates in the near future.

The core inflation rate, closely watched by the central bank because it better reflects underlying inflationary pressures, is seen partially relieved by the stronger peso, making imports cheaper. The Mexican currency has gained around 9% against the U.S. dollar in the last four months, recently trading at MXN12.8450.

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

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