Mexico’s Inflation Faster Than Expected as Banxico Cuts Rate

Mexican consumer prices rose more than economists expected in the first half of October after policy makers reduce interest rates to a record low to revive economic growth.

Prices increased 0.40 percent in the first two weeks of the month, compared with the 0.35 percent median forecast of 21 economists in a Bloomberg survey. Still, annual inflation slowed to 3.27 percent, the slowest pace since January. The central bank targets inflation of 3 percent.

Policy makers will cut the benchmark interest rate tomorrow for a third time this year, according to 24 out of 26 economists surveyed by Bloomberg. While inflation remains above the mid-point of the target range, the government has cut its 2013 growth by more than half.

“This inflation number does not change our view” that the central bank will cut rates, said Benito Berber, a strategist at Nomura Holdings Inc, in an e-mailed interview. “Demand side pressures are non-existent and the economy has not recovered since the September monetary policy meeting.”

The peso was little changed at 12.9997 per U.S. dollar at 9:19 a.m. in Mexico City. Yields on fixed-rate government peso bonds due in December 2014 rose two basis points, or 0.02 percentage point, to 3.55 percent.

Lower Rates

The central bank, after reducing borrowing costs to 3.75 percent last month, will cut its key rate to 3.5 percent tomorrow, according to the median estimate in the Bloomberg survey.

The government last month cut its growth forecast for this year to 1.7 percent as public spending slowed, exports stagnated and hurricanes Ingrid and Manuel devastated crops and hurt tourism. The Finance Ministry initially predicted Mexico would grow 3.5 percent in 2013.

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.

Energy costs increased 4.21 percent from the second half of September, the most since November 2012. Electricity prices climbed 19 percent, contributing the most to the jump in consumer prices.

Mexico’s economic activity, as measured by the IGAE indicator, increased 0.84 percent in August from a year earlier, less than the 1 percent median estimate of 21 economists surveyed by Bloomberg.

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