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Mexico CPI Rises Most in Two Years on Electricity Prices

Dec. 9 (Bloomberg) -- Mexican consumer prices rose by the most in two years in November on electricity costs and following three interest rate cuts this year to boost a flagging economy.

Prices climbed 0.93 percent in the month, the national statistics agency said, compared with the 0.91 percent median forecast in a Bloomberg survey of 20 analysts. Annual inflation quickened for the first time in seven months to 3.62 percent from 3.36 percent in October, while remaining within the central bank’s target range. Core prices, which exclude energy and farm costs, increased 0.14 percent, less than the 0.16 percent rise projected in a Bloomberg poll.

Banco de Mexico kept its key lending rate unchanged Dec. 6 following two consecutive reductions as the economy showed the first signs of recovery and annual inflation quickened in early November. The jump in prices in November was largely due to the seasonal removal of electricity subsidies and in line with market expectations, putting no pressure on Banxico to raise rates, said Alonso Cervera, chief Latin America economist at Credit Suisse Group AG.

“Inflation pressures are non-existent,” Cervera said in an e-mailed response to questions. “The central bank will likely remain comfortably on hold.”

The peso was little changed after the report, gaining 0.7 percent to 12.8437 per dollar at 8:16 a.m. in Mexico City.

The currency posted the biggest weekly gain in Latin America last week as lawmakers were scheduled to debate an overhaul of the energy industry.

’Favorable’ CPI

Electricity prices rose 22.6 percent in November from the previous month, accounting for 51 basis points of hte inflation increase, the statistics institute said in its statement. Among other prices increases, tomatoes jumped 23.6 percent and onions soared 25 percent.

The central bank had cut borrowing costs to a record low in October and September as the economy expanded at its weakest pace since the 2009 recession and inflation slowed for six straight months.

Inflation has remained “favorable,” even as analyst expectations for next year increased slightly due to the possible effects of new taxes, including one on junk food, Banxico said in its Dec. 6 statement, when it left the key rate at 3.5 percent.

Consumer prices will rise 3.88 percent next year, according to a monthly central bank survey released Dec. 2, up from the 3.79 percent forecast in the previous poll.

Fiscal Spending

The bank signaled at its October meeting that it didn’t foresee cutting rates again, citing plans by President Enrique Pena Nieto to raise spending next year to boost growth. The central bank has cut the overnight rate by a total of 1 percentage point this year.

The economy rebounded from a second-quarter contraction to expand 0.8 percent in the third quarter from the previous three months, more than forecast by analysts polled by Bloomberg.

Mexico’s central bank estimates that Latin America’s second-biggest economy will grow 0.9 percent to 1.4 percent this year, and that the pace of expansion will pick up to 3 percent to 4 percent in 2014.

The central bank will leave rates unchanged until March 2015, according to analysts in a bi-weekly survey published by Citigroup Inc.’s Banamex unit on Dec. 5.

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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