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Mexico Inflation Rose Less Than Forecast in Early September

Mexico’s consumer prices rose less than economists expected in early September, while annual inflation remained above the central bank’s target range, signaling that a four-month speedup in price increases may soon ease.

Prices rose 0.25 percent in the first two weeks of September, the national statistics agency said on its website today, less than all estimates from 14 analysts surveyed by Bloomberg, whose median forecast was for an increase of 0.31 percent. Annual inflation rose to 4.73 percent from a 29-month high of 4.57 percent at the end of August.

Mexico’s annual inflation rate has remained above the upper limit of the central bank’s 2 percent to 4 percent target range since June as a bird-flu outbreak and drought pushed up egg, poultry and corn prices.

“We’re close to the ceiling” on inflation, said Alonso Cervera, an economist at Credit Suisse Group AG. (CSGN) “But it will depend very much on farm prices.”

Cervera, who forecasts year-end inflation at 4.3 percent, said the main surprise today was a drop in telephone service prices.

Core prices, which exclude food and energy costs, gained 0.12 percent, less than all 13 estimates from analysts in a Bloomberg survey. Egg prices rose 5.2 percent and poultry increased 2.8 percent in the first half of the month, while landline phone service costs dropped 6.7 percent, the statistics institute said today.

Lowest Level

Central bank minutes from the Sept. 7 meeting released last week showed policy makers were unanimous in their decision to keep the benchmark interest rate unchanged, saying the inflation rate will drop and approach the 3 percent target as temporary price pressures ease.

The central bank board, led by Governor Agustin Carstens, kept the rate at 4.5 percent, the lowest level among major rate- setting banks in Latin America after Peru. The only Group of 20 nation to leave borrowing costs unchanged and not step up asset purchases in the past three years will stay on hold until March 2014, a Sept. 20 survey by Citigroup Inc. (C) shows. In a statement accompanying the decision, policy makers said they would remain “alert” to inflation developments.

Lower Risks

Most central bank board members said “that while inflation will remain above 4 percent in the coming months as effects of temporary shocks to inflation disappear it will regain its trend toward 3 percent,” according to the minutes. “The majority said that mid-term risks to inflation have diminished,” the minutes said.

Analysts at JPMorgan Chase & Co. (JPM), HSBC Holdings Plc (HSBA) and Citigroup Inc.’s Banamex unit increased their year-end inflation projections in the past two weeks, although they don’t see rates rising this year.

Carstens has forecast that inflation will slow to less than 4 percent by year-end, and last month said the recent jump in food prices alone doesn’t warrant tighter monetary policy. The central bank won’t “hesitate” to raise interest rates should the current pace of inflation persist, and the latest data indicate the economy will grow close to 4 percent this year, Carstens said Sept. 13.

Jobless Rate

Mexico’s unemployment rate climbed to 5.39 percent in August, the highest in 11 months and more than economists expected. The jobless rate had reached 5.02 percent in July.

Concern that Mexico’s peso would fuel faster inflation has declined as the currency, which tumbled 11 percent in 2011, has rallied 8 percent this year, the most among 16 major currencies tracked by Bloomberg. The currency fell 0.4 percent to 12.9066 per dollar at 9:46 a.m. local time.

Yields on inflation-linked bonds due in 2013, known as Udibonos, rose four basis points to 0.18 percent, according to data compiled by Bloomberg.

After rising 4.07 percent in the first half of August, egg prices surged 15.9 percent in the second half of the month, compared with 15.2 percent for all of July, according to statistics institute data. White bread costs increased 3.5 percent last month and annual core inflation, which excludes food and energy, reached 3.7 percent, the highest since July 2010.

Mexico lifted duties on all egg imports to help fight price increases, according to a presidential decree published in the nation’s official gazette earlier this month.

The central bank’s monetary policy meeting and the board’s discussion reflected in the minutes took place before the Federal Reserve announced a third round of asset purchases known as quantitative easing Sept. 13.

To contact the reporters on this story: Eric Martin in Mexico City at emartin21@bloomberg.net; Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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