Mexico CPI Rises Less Than Forecast, Fueling Rate Cut Bets

Mexican consumer prices rose less than analysts forecast in February, supporting expectations that the central bank may cut the benchmark interest rate as soon as tomorrow.

Prices climbed 0.49 percent in the month, the national statistics institute said today, lifting annual inflation to 3.55 percent from 3.25 percent in January. The median estimate of 19 analysts surveyed by Bloomberg was for prices to rise 0.53 percent. Core inflation, which excludes energy and agriculture prices, gained 0.51 percent, compared with the 0.54 percent forecast by analysts.

Annual inflation quickened after touching a 15-month low in January that caused traders to bet the central bank would cut the overnight rate for the first time since July 2009. Twenty-one of 22 economists in a Citigroup Inc. Banamex survey expect policy makers to reduce borrowing costs this year, with eight forecasting the move will happen tomorrow, after the central bank said it may cut the 4.5 percent rate if inflation keeps falling toward its 3 percent target.

Today’s inflation report “illustrates the argument that inflation is under control,” Delia Paredes, an economist at Grupo Financiero Banorte SAB, said by phone from Mexico City. “I continue to believe that they will cut rates tomorrow.”

Carstens’ Comments

Egg prices dropped 4.36 percent in February from a month earlier after a bird flu outbreak last year caused costs to soar, according to the statistics agency’s report today. Mobile phone service costs jumped 27.9 percent in the same period.

Central bank Governor Agustin Carstens said that if an outlook of slower growth and less inflation is “consolidated” lower rates may be advisable, according to a report published Feb. 22 on the Banxico website.

“Given the favorable behavior of inflation expectations, a reduction in the reference rate could be congruent with a process of inflation converging to its permanent target of 3 percent,” Carstens said.

The median forecast in the March 5 Banamex survey was for the benchmark rate to fall 50 basis points in April and for inflation to end the year at 3.69 percent, within the 2 percent to 4 percent target range.

Yields on fixed-rate Mexican government bonds due in December 2013 fell five basis points, or 0.05 percentage point, to 4.18 percent at 8:37 a.m. in Mexico City, according to data compiled by Bloomberg. Yields on inflation-linked bonds maturing in 2014 rose two basis points to 1.00 percent. The peso was little changed at 12.7819 per dollar. The peso rose 8.4 percent last year, the most among 16 major currencies tracked by Bloomberg.

‘Remain Vigilant’

Central bank board member Manuel Sanchez said in a Feb. 27 interview that he didn’t see a case for a rate cut “at this moment in time” as inflation and inflation expectations haven’t slowed to target.

Monetary policy should “remain vigilant” to risks including food-price increases and financial weakness abroad that could crimp investment in Mexican assets and hurt the peso, he said. Sanchez declined to predict how he’ll vote in the rate decision to be published tomorrow.

Mexico’s economic expansion will slow this year to 3.5 percent from 2012’s 3.9 percent, according to the median estimate of analysts in a Bloomberg survey.

The start this week of $85 billion in U.S. spending cuts after lawmakers failed to avert them may cause growth in Mexico to slow further, said Grupo Financiero Santander SAB. It lowered its 2013 expansion forecast to 3 percent from 3.6 percent March 4. Mexico sends almost 80 percent of its exports to the U.S.

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