Mexican Consumer Prices Rise Less Than Expected on Farm Costs

Mexican consumer prices rose less than expected in August amid muted increases in farm costs, with the annual inflation rate dropping to the lowest level since January.

Prices rose 0.28 percent from July, the national statistics agency said today on its website, compared with the median forecast for an increase of 0.33 percent from 18 economists in a Bloomberg survey. Annual inflation was 3.46 percent, compared with 3.47 percent in July, remaining below the 4 percent upper limit of the central bank’s target range. Core prices, which exclude energy and farm costs, increased 0.09 percent, less than the 0.11 percent median projection.

Mexican policy makers surprised analysts by cutting their benchmark interest rate for the second time this year on Sept. 6, saying the economy experienced a significant and unexpected slowdown in the second quarter. Banco de Mexico reduced the overnight lending rate by 25 basis points to a record-low 3.75 percent after the annual inflation rate fell in each of the previous three months amid easing agricultural prices.

“The weakening of Mexico’s economic activity intensified significantly during the second quarter,” the bank said in a statement accompanying its decision. “This weakening occurred faster and deeper than anticipated.”

The peso fell 0.1 percent to 13.1754 per U.S. dollar at 8:06 a.m. in Mexico City. The currency has lost 2.5 percent against the greenback this year.

Risks Intensified

The central bank said in its statement that economic risks have intensified and growth next year will probably be less than it forecast in the quarterly inflation report on Aug. 7. In that report, Banxico projected growth would be 3.2 percent to 4.2 percent next year.

Policy makers on Sept. 6 said that idle capacity in the economy may persist for a long time.

While the peso may weaken further and contribute more to inflation if the U.S. Federal Reserve starts tapering its $85 billion of monthly asset purchases, it should have a limited effect on consumer prices, the central bank said on Sept. 6.

Banxico surprised analysts on March 9 by cutting its key borrowing rate by 0.5 percentage point, the first adjustment since July 2009.

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

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net

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