Mexico Inflation Still Least Since '60s After September Rise

  • Prices rose less than expected last month even as peso fell
  • Inflation rate remains below central bank’s 3 percent target

Mexico consumer prices rose less than analysts expected in September as the annual inflation rate fell to a four-decade low.

Prices advanced 0.37 percent from a month earlier, the national statistics institute said on its website Thursday, compared with the 0.42 percent median forecast of 24 analysts surveyed by Bloomberg. The annual inflation rate fell to 2.52 percent from 2.59 percent the previous month, below the central bank’s target of 3 percent.

Mexico’s inflation rate has fallen to almost unprecedented levels on weak growth, lower costs for phone services and smaller gasoline-price increases. The last time inflation was this slow was 1968, when The Beatles topped the charts with the song “Hey Jude.” Still, the central bank has signaled its readiness to raise interest rates if necessary after the peso slumped to a record low last month.

“It’s a good result, lower than expected, and it will cause us to reduce our inflation forecast for the end of the year,” Rodolfo Navarrete, an analyst at Vector Casa de Bolsa, said by telephone from Mexico City. “The pass-through effect on inflation from the weaker peso is still very slow.”

The currency strengthened 0.5 percent to 16.5734 per U.S. dollar at 9:36 a.m. in Mexico City. On Sept. 24 the peso hit the lowest since a 1993 re-denomination.

Core prices, which exclude energy and farm costs, increased 0.37 percent in September from a month earlier, in line with the median forecast by analysts.

Limited price increases will allow Mexico’s central bank to delay increasing interest rates and give it room for a “decoupling” from actions of the U.S. Federal Reserve, according to Marco Oviedo, chief Mexico economist at Barclays Plc.

He changed his prediction for the first increase in Banco de Mexico’s overnight rate to June 2016 following Thursday’s inflation report, compared with a previous forecast of December 2015.

“The policy bias is now to remain on hold as long as possible,” he said in a note to clients, citing the latest inflation data and the minutes from the central bank’s last policy meeting, which were released Monday. “In our view, the board would like to observe more data on the evolution of economic activity, labor markets and inflation before starting a hiking cycle.”

Policy makers kept borrowing costs unchanged at a record low 3 percent on Sept. 21, saying Latin America’s second-largest economy continues to show weakness. Since December, economists have cut their 2015 growth forecasts by more than a percentage point to 2.31 percent, a central bank survey showed Oct. 2.

Inflation will end the year at 2.9 percent, according to the median forecast of economists surveyed by Bloomberg.

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