Mexico Consumer Prices Rose Less Than Forecast in December

Mexican consumer prices rose less than expected in December, bringing the annual inflation rate to its lowest since July.

Prices increased 0.49 percent in the month, the national statistics institute said on its website today, compared with the 0.51 percent median forecast of 19 economists surveyed by Bloomberg. The annual inflation rate fell to 4.08 percent, down from 4.17 percent in November. Banco de Mexico targets inflation of 3 percent, plus or minus one percentage point.

The December report shows “no evidence” that the recent depreciation of the peso against the dollar is causing inflation to accelerate by boosting import prices, Carlos Capistran, chief economist for Mexico at Bank of America Corp., said in a note to clients today. The Mexican currency dropped 5.6 percent against the dollar in December, the biggest monthly decline in more than two years.

“Inflation will look good in 2015 despite the peso depreciation,” said Capistran, who correctly forecast the December rise in consumer prices and estimates a 3.5 percent inflation rate for this year. “We don’t see a need for Banxico to hike rates soon based on our inflation expectations.”

The peso strengthened 0.4 percent to 14.6623 per U.S. dollar at 8:56 a.m. in Mexico City. The currency fell to the lowest since March 2009 on Jan. 5.

Core prices, which exclude energy and farm costs, increased 0.23 percent in December from a month earlier, less than the 0.26 percent median forecast by analysts. Non-core prices advanced 1.28 percent. The biggest contributors to December inflation were tomato and beef prices, followed by travel packages.

Slowing Inflation

The central bank, led by Governor Agustin Carstens, left borrowing costs unchanged at a record-low 3 percent on Dec. 5 saying risks for the economy deepened, while a slump in the peso threatened to spur inflation. Economic growth has missed economists’ forecasts in eight of the past 10 quarters, and inflation accelerated in each of the six months through October.

Inflation is expected to slow to 3.6 percent in 2015, according to the median forecast of analysts surveyed by Bloomberg. The economy will grow 3.4 percent this year, up from 2.2 percent in 2014, 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 telecommunications service charges fall, policy makers said in their Dec. 5 statement.

Still, inflation may face pressure from a five-month decline in the peso, they said in the minutes released last month.

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