Mexico Consumer Prices Unexpectedly Fell on Food Prices

Mexico’s consumer prices fell in July for the third straight month as food and merchandise prices declined and Latin America’s second-biggest economy struggles to boost growth.

Prices dropped 0.03 percent from June, the national statistics agency said today on its website, compared with the median forecast for an increase of 0.02 percent from 18 economists in a Bloomberg survey. Annual inflation was 3.47 percent compared with 4.09 percent in June, falling into the central bank’s 2 percent to 4 percent target range for the first month since February.

“This shows that demand remains weak,” Marco Oviedo, chief Mexico economist at Barclays in Mexico City, said in a telephone interview. “There’s probably a lot of inventory and merchants haven’t been able to increase their prices.”

Banco de Mexico yesterday lowered its 2013 growth forecast to a range of 2 percent to 3 percent from a previous forecast of 3 percent to 4 percent while stressing it sees economic activity accelerating in the second half.

Slowing Activity

“Economic activity at a global level has been slowing,” central bank Governor Agustin Carstens said at the presentation of Banxico’s quarterly inflation report yesterday. “This has shown itself in a substantive drop in international trade” and “contagion from advanced economies to emerging ones,” he said.

Yields on fixed-rate peso bonds due in 2024 fell 5 basis points, or 0.05 percentage point to 5.80 percent at 10:21 a.m. in Mexico City. The peso strengthened 0.5 percent against the U.S. dollar to 12.6565.

Lower-than-expected core inflation reflects weak aggregate demand and “could be bad news for economic activity,” Barclays’s Oviedo said. The bank lowered its annual CPI estimate to 3.5 percent from 4 percent, according to a research note today.

Core prices, which exclude energy and farm costs, rose 0.03 percent in the month, compared with the median forecast of a 0.09 percent increase. Farm prices tumbled 1.51 percent, according to the statistics institute.

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