• Inflation remains below central bank 3 percent target
  • Banxico kept key rate steady last month after peso rebounded

Mexico’s consumer prices dropped more than forecast in early April, keeping the annual inflation rate below the central bank’s target, as electricity and food costs declined.

Prices decreased 0.34 percent from two weeks earlier, the national statistics institute said on its website Friday, more than the 0.24 percent median forecast of 23 analysts surveyed by Bloomberg. From a year earlier, prices rose 2.6 percent, compared with 2.49 percent at the end of March. Banco de Mexico targets inflation of 3 percent.

The central bank last month left the overnight rate on hold at 3.75 percent after the peso strengthened from record lows and the U.S. Federal Reserve kept its own rates steady. Given that the key rate remains near an all-time low, Banco de Mexico can increase borrowing costs gradually and in line with the the Fed without hurting the economy, Mexican central bank Governor Agustin Carstens said in an interview on Wednesday.

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The peso has gained 8.2 percent since Feb. 17, when in a rare coordinated move the central bank raised the key rate between scheduled decisions and the Finance Ministry announced spending cuts. The actions have been "quite successful" in stabilizing the peso, Carstens said Wednesday.

The peso gained 0.1 percent to 17.4583 per dollar at 8:07 a.m. in Mexico City on Friday.

Inflation slowed last year to levels not seen since 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.

Policy makers said last month that they expect the annual pace of consumer-price increases to rise slightly above the 3 percent target in the second and third quarters before closing the year near that level.

Core prices, which exclude energy and farm costs, increased 0.15 percent in early April, compared with the 0.12 percent median forecast of analysts surveyed by Bloomberg.

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