Mexico Consumer Prices Rise Most Since March Amid Rate Reduction

Mexican consumer prices rose in October by the most in seven months as energy costs increased and the central bank cut interest rates.

Prices climbed 0.48 percent from a month earlier, compared with the 0.46 percent median forecast of 20 economists in a Bloomberg survey. Annual inflation slowed to 3.36 percent, the least since January, from 3.39 percent in September.

The central bank yesterday raised its forecast for inflation next year to 3.5 percent, a week after Governor Agustin Carstens said policy makers shouldn’t reduce interest rates from the current record low because tax increases will add to pressure on prices in the short term. The central bank’s board cut the benchmark interest rate a quarter percentage point to 3.5 percent on Oct. 25 and signaled that the move will be the last reduction in borrowing costs.

“Taking into consideration the impact of the fiscal reform, a rate below 3.5 percent at this time, is not necessary, adequate for the convergence” of inflation to the central bank’s 3 percent target, Carstens said in an Oct. 30 interview.

Congress last week approved an 8 percent levy on junk food, a 1 peso-per-liter duty on sugary drinks, and raised sales taxes at the border to 16 percent from 11 percent.

Growth Forecast

While the central bank yesterday cut its growth forecast for this year to between 0.9 percent and 1.4 percent from 2 percent to 3 percent, it raised the inflation estimate for next year to 3.5 percent from near 3 percent, citing the tax increases.

The peso rose 0.4 percent to 13.1270 per U.S. dollar at 8:13 a.m. in Mexico City. Yields on fixed-rate government peso bonds due in December 2014 fell one basis point, or 0.01 percentage point, to 3.64 percent.

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 risks to the downside for growth in the Mexican economy, while they are less than in the most recent months, remain elevated,” the central bank said in yesterday’s quarterly inflation report.

Energy costs increased 4.3 percent in October from the previous month and fruits and vegetables rose 0.3 percent, while prices for livestock fell 1.3 percent.

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

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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.