Mexico CPI Rises Less Than Expected as Farm Prices Decline

Mexican consumer prices rose less than economists expected in January as falling farm prices softened the impact of new taxes on everything from potato chips to chocolates.

Prices climbed 0.89 percent from the previous month, the national statistics agency said, compared with the 0.97 percent median forecast of 20 analysts in a Bloomberg survey. Annual inflation (MXCPYOY) quickened to 4.48 percent from 3.97 percent in December, above the 4 percent upper limit of the target range. Core prices, which exclude energy and farm costs, increased 0.85 percent, less than the 0.89 percent forecast in a separate Bloomberg poll.

Banco de Mexico has said that a pick-up in inflation from new taxes isn’t spreading to the broader economy and price increases will probably slow to within policy makers’ target range in the second quarter. Still, economists see inflation ending the year above the 4 percent upper limit of the target range as economic growth recovers, according to a Feb. 6 central bank survey.

The peso weakened 0.2 percent to 13.3032 at 8:02 a.m. in Mexico City. The currency fell to its lowest level in 18 months on a closing basis earlier this week after the U.S. Federal Reserve said it would reduce the amount of bonds it purchases each month, sapping demand for assets from developing countries. A weak peso can pressure inflation by pushing up import prices.

Swap Rates

The yield on inflation-linked bonds due in 2016 rose 8 basis points to 0.98 percent. Twelve-month swaps rates fell three basis points to 4.00 percent, indicating traders see about a 76 percent probability Mexico will lift borrowing costs in 2014.

A majority of analysts expect Banxico to leave its key rate at a record-low 3.5 percent this year, according to a central bank survey published Feb. 6. The economy will expand 3.4 percent after growing 1.2 percent in 2013, the monthly poll shows.

The central bank left the overnight lending rate unchanged on Jan. 31 after cutting it three times last year, saying economic growth is picking up gradually and faster inflation will be transitory.

Finance Minister Luis Videgaray reaffirmed in a radio interview yesterday the government’s growth forecast of 3.9 percent for this year, even after recent economic indicators disappointed analysts.

Consumer confidence unexpectedly fell in January to 84.5, the lowest level since April 2010. The seasonally adjusted purchasing managers’ index for manufacturing also dropped to 49.7 in January from 50.3 the previous month, the Mexican Institute of Finance Executives reported this week. And the economic activity indicator slid 0.04 percent in November from a year earlier, according to the statistics institute.

“Inflation will remain subdued under a moderate recovery,” Marco Oviedo, chief Mexico economist at Barclays Plc, said in an e-mailed response to questions before today’s report. The central bank would only raise rates this year “if the economy recovers strongly, inflation accelerates and the peso remains weak for a persistent period of time.”

To contact the reporter on this story: 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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