Mexico CPI Rate Jumps for Second Month as Growth Accelerates

Mexico’s annual inflation rate rose for a second month in June, breaching the upper limit of the central bank’s target range and reinforcing forecasts that policy makers will refrain from cutting interest rates.

Inflation accelerated to 4.34 percent from 3.85 percent the month before, the national statistics institute said on its website today. Prices climbed 0.46 percent from the month before. The median forecast from 13 economists surveyed by Bloomberg was for prices to rise 4.3 percent in the year. The central bank targets inflation of 2 percent to 4 percent.

Mexico’s economy grew 4.6 percent in the first three months of 2012 from a year earlier, the fastest pace in six quarters, helping fuel a consumer price increase of 4.3 percent in the 12 months through mid-June.

“Inflation will remain above the central bank range in the coming months,” said Rafael Camarena, an economist at Banco Santander SA in Mexico City. “On the other hand, core inflation is relatively stable. Our base scenario continues to be that the central bank will maintain its rate of 4.5 percent probably until the end of next year.”

Food, Energy

Core prices, which exclude food and energy costs, gained 0.22 percent from the month before, in line with the 0.21 percent median estimate from 14 economists surveyed by Bloomberg.

Mexico’s central bank kept its benchmark interest rate unchanged for the 27th straight meeting on June 8 as a weaker global economic outlook led it to downplay the risks to inflation.

“We consider that the balance of risks to growth of the Mexican economy has deteriorated, reflecting the intensification of the downside risks to the global economy,” the bank said in a statement accompanying the decision. “The balance of inflation risks remains unchanged.”

Central bank Governor Agustin Carstens predicted in a July 4 interview that inflation will slow this quarter to within policy makers’ targeted range and said 2012 economic growth probably will fall short of the high end of the bank’s projection.

Consumer price increases probably will slow to an annual rate of less than 4 percent this quarter after rains ended a drought that had caused a spike in agricultural prices, Carstens said. While a bird flu outbreak detected in western Mexico may cause a “blip” in egg prices, the rise won’t last, he said.

The pace of gross domestic product growth in Latin America’s second-largest economy this year “depends mostly on the U.S. economy” and probably will be 3.5 percent to 4 percent, Carstens said. He added it appears “less likely” GDP expansion will reach the 4.25 percent that is the upper limit of the central bank’s May forecast.

No Concerns

Mexico’s Finance Minister Jose Antonio Meade said in a July 3 interview that his government has no concerns about inflation “whatsoever.”

Mexico’s gross domestic product will expand 3.7 percent this year and 3.5 percent in 2013, according to the median estimate in a survey of economists by Citigroup Inc.’s Banamex unit released in an e-mail on July 5. Annual inflation will end this year at 3.81 percent and is expected to end 2013 at 3.69 percent, according to the survey. Economists see the Mexican peso closing 2012 at 12.98 per U.S. dollar, the survey showed.

The peso depreciated 0.3 percent to 13.4265 per U.S. dollar at 8:09 a.m. in Mexico City, paring its gain this year to 3.8 percent. Yields on Mexican local currency bonds tied to inflation due in December 2013 fell one basis point, or 0.01 percentage point, to 0.12 percent.

The central bank announces its next interest rate decision on July 20.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE