Mexican Consumer Prices Rose More Than Expected in Early October

Mexican consumer prices rose more than economists expected in the first half of October as energy costs increased.

Prices climbed 0.40 percent in the first two weeks of the month, the national statistics agency said today on its website, compared with the 0.35 percent median forecast of 21 economists in a Bloomberg survey. Annual inflation slowed to 3.27 percent from 3.32 percent in September, nearing the central bank’s 3 percent target. Core prices, which exclude energy and farm costs, increased 0.14 percent, more than the 0.12 percent median projection.

Policy makers led by Governor Agustin Carstens will reduce borrowing costs by at a quarter percentage point tomorrow to a record-low 3.5 percent, according to the median forecast of economists surveyed by Bloomberg. Retail sales and industrial production unexpectedly fell in August from the year earlier, adding to signs that economic weakness from the first half of the year continued in the third quarter.

The government last month cut its growth forecast for this year to 1.7 percent, half of the 3.5 percent it projected at the start of the year, after public spending dropped in the first half, exports stagnated and hurricanes Ingrid and Manuel decimated crops, disrupted deliveries and emptied hotels.

The peso fell 0.2 percent to 13.0171 per U.S. dollar at 8:07 a.m. in Mexico City. Yields on fixed-rate government peso bonds due in December dropped eight basis points, or 0.08 percentage point, to 3.46 percent.

Dissenters

Banco de Mexico cut its key rate a quarter point to 3.75 percent on Sept. 6, surprising 19 of 20 economists in a Bloomberg survey who predicted no change. It was the most contested decision since the central bank began publishing minutes in February 2011, with two dissenters on the five-member board preferring to wait until the Federal Reserve clarified its strategy for paring its record stimulus.

The Fed decided against tapering its $85 billion in monthly bond purchases at its meeting on Sept. 18. The Federal Open Market Committee’s next decision is scheduled for Oct. 30.

Traders have stepped up their interest-rate wagers for Mexico on speculation that the 16-day U.S. government shutdown, which ended last week, will curb demand for Mexico’s exports, hurt U.S. growth and spur the Fed to continue quantitative easing. The Fed will delay the first reduction in its bond purchases until March after the government shutdown slowed fourth-quarter growth and interrupted the flow of data, according to the median of 40 responses in a Bloomberg News survey of economists.

To contact the reporter on this story: Eric Martin in New York at emartin21@bloomberg.net

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

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