Mexico Annual CPI Falls Within Target Range After Six Months

Mexican inflation slowed in the first half of December to within policy makers’ target range for the first time since May, buoying expectations that interest rates will remain on hold.

Prices climbed 0.27 percent, the national statistics agency said today, slowing annual inflation to 3.76 percent as of Dec. 15 from 4.18 percent in November and to within the central bank’s 2 percent to 4 percent target range. Analysts had expected prices to rise 0.35 percent, according to the median of 13 estimates in a Bloomberg survey. Core inflation, which excludes energy and food, rose 0.26 percent.

The inflation rate had remained above the target range since June. Policy makers said in the minutes from their Nov. 30 meeting that they see a clear downward trend and warn that Mexico’s growth outlook has been hurt by U.S. fiscal uncertainty. The central bank board kept the key interest rate unchanged at a record-low 4.5 percent last month, saying inflation would drop within the target range by year-end.

“We see inflation below 4 percent,” Rafael Camarena, an economist at Banco Santander SA in Mexico City, said in a telephone interview before the report. “We don’t think the central bank will raise rates.”

Improving CPI

The minutes published Dec. 14 said that the inflation outlook has improved “at the margins” and reiterated that the central bank may consider raising rates if new inflation shocks arise. Most board members said they saw a risk to CPI in the possibility of higher-than-expected prices set by the government. The government decides prices including gasoline and other energy costs.

Mexico’s economic growth eased to 3.3 percent in the third quarter from 4.4 percent in the previous three months as U.S. business investment slowed on concern Congress will fail to avoid $600 billion in automatic spending cuts and tax increases in January.

Latin America’s second-biggest economy will grow 3.9 percent this year, about four times the pace of Brazil and almost double the U.S., and 3.5 percent in 2013, Finance Minister Luis Videgaray has said.

Foreign companies are stepping up to take advantage of that growth. Sherwin-Williams Co. (SHW), the largest U.S. paint retailer, last month agreed to acquire closely held Consorcio Comex SA de CV, Mexico’s largest paint maker, for about $2.34 billion including debt as housing demand improves.

Anheuser-Busch InBev NV (ABI) in June agreed to pay $20.1 billion for the half of Grupo Modelo SAB, Mexico’s largest brewer, that it didn’t already own to speed up its push into faster-growing developing countries.

’Shift in Trend’

There’s been a “shift in trend” in inflation since the rate climbed to a two-year high of 4.77 percent in September, central bank Deputy Governor Manuel Ramos Francia wrote in a report published on the bank’s website Dec. 10.

While softening its language in a statement accompanying the Nov. 30 rate decision, the central bank still referred to monetary policy tightening.

“If new shocks to inflation emerge, even if they are presumed to be temporary” the board may find it “appropriate” to tighten monetary policy, the bank said.

Yields on Mexican inflation-linked bonds due in 2014 rose 1 basis points to 1.01 percent at 8:09 a.m. in Mexico City. The peso fell 0.9 percent to 12.8735 per U.S. dollar. The currency has strengthened 9.2 percent this year through yesterday, the best performance among 16 major currencies tracked by Bloomberg.

To contact the reporter on this story: 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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