Mexico Inflation Reaches Top of Central Bank Target Range

Mexican consumer prices rose more than expected in the first half of July, pushing the annual inflation rate to the upper limit of the central bank’s target range.

Prices increased 0.2 percent from two weeks earlier, the national statistics institute said on its website today, compared with the 0.15 percent median forecast of 23 economists surveyed by Bloomberg. The annual inflation rate climbed to 4 percent, the highest since March. Banco de Mexico targets inflation of 3 percent, plus or minus one percentage point.

The central bank unexpectedly cut its benchmark rate half a point to a record low 3 percent last month to bolster economic growth that has missed economists’ forecasts in seven of the past eight quarters. Policy makers left borrowing costs unchanged July 11, saying the economy showed signs of picking up in the second quarter without pressuring inflation.

“Strength in the core component suggests that the economy is probably gaining steam,” Marco Oviedo, the chief economist for Mexico at Barclays Plc, said in an e-mailed response to questions.

Core prices, which exclude energy and farm costs, increased 0.14 percent in the first half of July, more than the 0.1 percent forecast by analysts. Core prices advanced 3.2 percent from a year earlier, compared with a 6.68 percent jump in more volatile non-core prices.

Gasoline Relief

The peso was little changed at 12.9361 per U.S. dollar at 8:20 a.m. in Mexico City.

The central bank forecast in May that inflation may climb back above 4 percent for some months this year before nearing 3 percent in early 2015, when the government changes the way it prices gasoline.

Starting in January, changes in gasoline prices will be pegged to broader inflation rather than subject to regular increases by the government that have been running ahead of inflation in the rest of the economy. The price of low-octane gasoline increased 11 percent from a year earlier in June, compared with inflation of 3.75 percent.

Inflation slowed to 3.5 percent in April from an eight-month high of 4.48 percent in January as the effect of new taxes implemented at the start of the year waned. The annual rate is accelerating again amid improved economic performance and comparisons with slowing inflation a year ago.

Banxico cut its 2014 growth forecast to between 2.3 percent and 3.3 percent in May from a previous estimate of 3 percent to 4 percent. After the central bank’s rate cut last month, Governor Agustin Carstens said policy makers may need to lower their expectations again because expansion in the first quarter was less than projected.

Gross domestic product grew 1.8 percent in the first three months of 2014 from a year earlier, less than the 2.1 percent median forecast of analysts surveyed by Bloomberg.

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

To contact the editors responsible for this story: Philip Sanders at psanders@bloomberg.net

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