Mexico Consumer Prices Rise as Central Bank Cuts Interest Rate

Mexican consumer prices rose in the first half of June as the central bank unexpectedly cut the nation’s key interest rate.

Prices gained 0.08 percent, compared with the 0.1 percent median forecast of 22 economists surveyed by Bloomberg. The annual inflation rate climbed to 3.71 percent from 3.58 percent two weeks earlier, remaining below the 4 percent upper limit of the bank’s target range.

Annual inflation had slowed this year as growth stagnated, leading the central bank to cut its benchmark rate half a point to a record low 3 percent this month. Banco de Mexico said in its May 21 quarterly inflation report that the pace of price increases may climb back above 4 percent for some months this year before nearing the 3 percent target in early 2015.

The peso was little changed at 13.0263 per U.S. dollar at 8:03 a.m. in Mexico City. The yield on inflation-linked bonds due in June 2016 was little changed at 0.12 percent.

Core prices, which exclude energy and farm costs, increased 0.12 percent in early June, more than the 0.09 percent increase forecast by analysts.

Inflation Slows

Inflation has slowed from an eight-month high of 4.48 percent in January as the effect of new taxes wanes. On Jan. 1, Mexico increased the sales tax along the U.S. border and in some coastal areas to 16 percent from 11 percent and implemented a new 1-peso-per liter duty on soft drinks.

The tax increase damped growth as the consumer confidence index fell to the lowest level in almost four years in January.

Gross domestic product grew 1.8 percent in the first quarter from a year earlier, less than the 2.1 percent median forecast of analysts surveyed by Bloomberg. Compared with the previous quarter, the economy grew 0.3 percent, the statistics agency said on May 23.

Banxico cut its growth forecast to between 2.3 percent to 3.3 percent last month from a previous estimate of 3 percent to 4 percent.

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