Mexico Prices Rise Less Than Forecast in First Half of October

  • Annual inflation rate stays below target with record low
  • Phasing out of electricity discounts contributed to increase

Mexico’s consumer prices rose less than expected in the first half of October as the annual inflation rate fell to the lowest since the nation began tracking mid-month inflation.

Prices increased 0.46 percent from the previous two weeks, the national statistics institute said on its website Thursday, compared with the 0.5 percent median forecast of 23 analysts surveyed by Bloomberg. From a year earlier, prices rose 2.47 percent, less than the 2.51 percent increase in the previous two-week period.

The drop comes after Mexico’s annual inflation rate for the full month of September fell to its lowest since 1968, dragged down by weak economic growth, falling phone-service costs and lower gasoline-price increases. The central bank, led by Governor Agustin Carstens, expects price increases to remain below its 3 percent target for the rest of this year.

Banco de Mexico has kept borrowing costs at a record-low 3 percent since June 2014 in a bid to boost growth. More recently, policy makers have indicated they may need to raise interest rates later this year in response to a potential increase by the Federal Reserve.

Even with inflation at historically low levels, policy makers have said they’re watching for the potential emergence of inflation pressures due to weakness in the peso, which fell to a record low last month. The currency’s slide so far has mainly had an impact on prices for durable goods and hasn’t had broader impact or contaminated inflation expectations, the central bank said in a statement Oct. 5.

Consumer prices rose in early October as the government phased out seasonal electricity discounts.

The peso maintained its gain, strengthening 0.6 percent to 16.5532 per U.S. dollar at 8:01 a.m. in Mexico City. The currency hit the lowest level since a 1993 re-denomination last month and has tumbled 18 percent in the past year, reflecting expectations for an interest-rate increase in the U.S. and the impact of low crude prices on growth and public spending in Mexico.

Core prices, which exclude energy and farm costs, increased 0.16 percent in early October, comparable to the 0.17 percent median forecast of analysts surveyed by Bloomberg.

Banco de Mexico kept interest rates at a record low on Sept. 21, saying Latin America’s second-largest economy continues to show weakness. Since December, economists have cut their 2015 economic growth forecasts by more than a percentage point to 2.2 percent, a survey by Citigroup Inc.’s Mexico unit showed Tuesday.

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