Mexico Annual Inflation Rate Climbs to Highest Since June

Mexican consumer prices increased, lifting the annual inflation rate to the highest since the second half of June, as tourism packages and airfare jumped at the start of the holiday season.

Prices climbed 0.40 percent in the first two weeks of the month, the national statistics agency said today, compared with the 0.37 percent median forecast of 19 economists surveyed by Bloomberg. Annual inflation quickened to 3.86 percent, the highest since 3.93 percent in late June and nearing the 4 percent upper limit of the central bank’s target range. Core prices, which exclude energy and farm costs, increased 0.30 percent, more than the 0.25 percent median projection.

Today’s report is unlikely to affect expectations that the central bank will remain on hold for the foreseeable future because policy makers forecast inflation will approach the 3 percent target in the medium to long term, Gabriel Lozano, chief Mexico economist at JPMorgan Chase & Co., said in a phone interview.

“It’s not one of the most significant reports we’ve seen recently,” Lozano said. “It’s not much of a surprise. Inflation is not the biggest concern for the central bank given the distinction between the short-term and medium- to long-term expectations.”

Economic Recovery

The peso gained 0.1 percent to 12.9615 per dollar at 9:29 a.m. in Mexico City.

Latin America’s second-largest economy is expected to strengthen gradually next year, Banco de Mexico said in the minutes to its Dec. 6 monetary policy decision, when it kept interest rates on hold. Consumer prices had risen in November by the most in two years as electricity costs surged and after the central bank cut rates by a quarter point at its September and October meetings to boost a slowing economy.

Annual inflation will be about 3.5 percent throughout 2014 before easing to near the central bank’s 3 percent target in 2015, most policy makers said in the minutes released Dec. 20.

Prices for tourist packages climbed 13 percent in the first half of December from the previous two weeks and airfares jumped 21 percent. The increase reflected higher prices charged for vacation travel in the leadup to the Christmas holiday, Lozano said. Red tomato prices jumped 13 percent and prices for metro and electric transportation increased 10 percent.

Analysts raised their annual inflation forecast for the end of this year to 3.82 percent from 3.71 percent in a monthly central bank survey released Dec. 19, after Mexico City boosted subway prices by two-thirds and congress passed new taxes on soda and junk food that start in 2014. The increased subway fare will be reflected more in the second half of December since it went into effect on Dec. 13 and the report measured prices for the two weeks through Dec. 15.

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