Mexico Inflation Rate Fell to Near Five-Decade Low in August

Updated on
  • Prices rose less than forecast last month compared with July
  • Inflation rate remains below central bank's 3 percent target

Mexico consumer prices rose less than analysts expected in August, pushing the annual inflation rate to the lowest in almost half a century.

Prices advanced 0.21 percent from a month earlier, the national statistics institute said on its website today, compared with the 0.24 percent median forecast of 23 analysts surveyed by Bloomberg. The annual inflation rate fell to 2.59 percent from 2.74 percent the previous month, below the central bank’s target of 3 percent. 

Mexico’s inflation rate has fallen to almost unprecedented levels on weak growth, falling costs for phone services and lower gasoline-price increases.
The last time inflation was this slow was 1968, when the Vietnam War was at its height and the Soviet leadership was preparing to crush the Prague Spring. Still, the central bank has signaled its readiness to raise interest rates after the peso slumped to a record low last month on the outlook for an increase in U.S. borrowing costs.

“We’re seeing a general lack of price pressures and inflation is dropping to historic lows,” Jose Velasco, an economist at Casa de Bolsa Ve Por Mas in Mexico City, said by telephone. “The weaker peso’s effect on inflation is still quite moderate.”

The government will nominate Banco de Mexico Governor Agustin Carstens, who has headed the central bank during the inflation rate’s decline, for a second six-year term, Finance Minister Luis Videgaray said Tuesday.

The peso strengthened 0.5 percent to 16.7346 per U.S. dollar at 9:03 a.m. in Mexico City. The currency hit the lowest since a 1993 re-denomination on Aug. 26.

Core prices, which exclude energy and farm costs, increased 0.20 percent in August from a month earlier, in line with the median forecast by analysts.

Banco de Mexico kept borrowing costs unchanged at a record low 3 percent on July 30, saying Latin America’s second-largest economy continues to show weakness. Since December, economists have cut their 2015 growth forecasts by more than a percentage point to 2.34 percent, a central bank survey showed Sept. 1.

Inflation will end the year at 3 percent, according to the median forecast of economists surveyed by Bloomberg.