Mexico Consumer Prices Rose More Than Forecast in Early December

Mexican consumer prices rose more than expected in the first half of December, keeping the annual inflation rate above the upper limit of the central bank’s target range.

Prices increased 0.41 percent from the prior two weeks, the national statistics institute said on its website today, compared with the 0.38 percent median forecast of 19 economists surveyed by Bloomberg. The annual inflation rate increased to 4.19 percent. Banco de Mexico targets inflation of 3 percent, plus or minus one percentage point.

The central bank, led by Governor Agustin Carstens, left borrowing costs unchanged at a record-low 3 percent on Dec. 5, saying the outlook for both growth and inflation has deteriorated following a peso selloff. Most board members said slack in the economy partly offsets inflation risks from the currency’s slump, according to the minutes of the meeting published last week.

The peso was little changed at 14.6576 per U.S. dollar at 8:04 a.m. in Mexico City. The currency fell to its weakest level since March 2009 this month, and the central bank on Dec. 8 announced dollar auctions to curb volatility.

Core prices, which exclude energy and farm costs, increased 0.21 percent from the previous two weeks, less than the 0.26 percent forecast by analysts. Core prices advanced 3.26 percent from a year earlier, compared with a 7.11 percent jump in more volatile non-core prices.

Economic Growth

A report last month showed the Mexican economy expanded less than forecast in the three months through September for the eighth quarter out of the past ten, on weak domestic demand.

Banco de Mexico has cut interest rates by 1.5 percentage points to a record-low 3 percent since March 2013 to bolster growth. It will keep rates on hold until raising them by a half point in the second quarter of next year, according to the median forecast in the Bloomberg survey.

Economists surveyed by Bloomberg expect inflation to end 2014 at 4 percent and slow to 3.6 percent in 2015, according to the median forecast. The economy will grow 3.4 percent next year, up from 2.2 percent this year, analysts forecast.

The central bank is more optimistic on inflation. The rate of consumer-price increases will slow to near 3 percent by the middle of 2015 as gasoline-price rises abate and the effects of this year’s higher taxes wane, policy makers said in their Dec. 5 statement. Still, prices could face pressure from international volatility and a possible minimum-wage increase, they said in the minutes released last week.

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