Mexico's Inflation Eases Further In March Juan Montes - Dow Jones
go to original April 9, 2012

Mexico's inflation accelerated less than expected in March as some agricultural-product prices kept falling sharply, marking the lowest reading for March on record and giving the central bank more room to cut rates in the future.

The consumer-price index rose 0.06% in March, the National Statistics Institute, or Inegi, said Monday, lowering the annual rate of inflation to 3.73% from 3.87% at the end of February. The increase was below the 0.10% median estimate in a Dow Jones Newswires survey of 21 economists.

It was the smallest March inflation reading on record going back to 1969.

The core index, which excludes energy and fresh fruit and vegetables, rose 0.24% in the period, below the expected 0.27% and pushing the annual rate down to 3.31% from 3.37%. Higher costs of tourism services ahead of the Easter holidays and increases in gasoline prices explained the rise. The core inflation rate is closely watched by the central bank because it better reflects underlying inflationary pressures.

Annual inflation started to ease in early February after four months of increases. The minutes of the Bank of Mexico's most-recent policy meeting, published late last month, showed most board members agreed inflation was moving toward the bank's 3% target, and several considered that interest rate cuts could be advisable if the inflation outlook continues to improve.

The central bank expects inflation measured by the consumer-price index to be between 3% and 4% this year.

Volatile vegetable and fruit prices, which had been pressuring inflation higher in late 2011, fell 3.7% during March, with green-tomato prices plummeting 43%. The elimination this year of an annual car-ownership tax also contributed to the lower inflation.

The Bank of Mexico left interest rates unchanged at 4.5% in March for a 25th consecutive meeting, as growth prospects are improving and consumer prices remain relatively under control. The central bank said the inflation outlook has improved, given that the effects of last year's drought have started to diminish and the likelihood of a external shock coming from Europe has also decreased.

juan.montes@dowjones.com

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