Mexico Consumer Prices Rose More Than Forecast in January

  • Mexico's annual inflation rate rebounds from four-decade low
  • Banxico lifted key rate in December for first time since 2008

Mexico consumer prices rose more than analysts forecast in January, lifting the annual rate from the lowest level in almost half a century, on a jump in agricultural costs.

Prices increased 0.38 percent from the previous month, the national statistics institute said on its website Tuesday. The median forecast of 24 analysts surveyed by Bloomberg was for an increase of 0.28 percent. From a year earlier, prices climbed 2.61 percent, compared with 2.13 percent the month before. Faster annual inflation was due in part to less favorable comparisons with a year ago, when the government eliminated long distance phone fees.

The central bank last week left its key rate on hold at 3.25 percent, matching the most recent decision by the Federal Reserve. While policy makers highlighted concern about the implications of the peso’s slump to a record low, they said it has had a limited impact on inflation and that they expect the pace of consumer-price increases to end 2016 near their 3 percent goal. The board in December lifted borrowing costs for the first time since 2008 to preserve Mexico’s yield advantage over the U.S.

"It’s pretty clear the surprise was only in agricultural prices," said Carlos Capistran, chief Mexico economist at Bank of America Corp. in Mexico City. "If you look at core inflation, it’s the same story of limited pass through and inflation still low. This is in line with what the central bank has been expecting, which is inflation moving to slightly above 3 percent this year."

Inflation slowed last year to levels last seen in the late 1960s after the government moved to end monthly gasoline price increases and did away with long-distance phone connection fees, outweighing the impact of the weaker currency on import prices.

The peso lost 14 percent last year, the most since 2008, and another 7.8 percent this year through Monday, the worst 2016 performance among 16 major currencies tracked by Bloomberg. The peso lost 0.9 percent to 18.8359 per U.S. dollar at 8:21 a.m. in Mexico City.

Still, Mexico will probably increase interest rates by 0.75 percentage point this year, matching the U.S., according to the median forecast of economists surveyed by Bloomberg.

Core prices, which exclude energy and farm costs, increased 0.19 percent in January, compared with the 0.2 percent median forecast of analysts surveyed by Bloomberg. Fruit and vegetable prices jumped 6.98 percent from a month earlier.

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