Mexico Inflation Rate Finishes 2015 at Lowest Level Since 1968

  • Rate falls to 2.13%, near low end of Banxico target range
  • Banxico lifted key rate last month for first time since '08

Mexico capped the best year for inflation in almost half a century with the annual rate falling for a ninth straight month in December, defying a slump in the peso and rising inflation elsewhere in Latin America.

The rate fell to 2.13 percent, the lowest since 1968 and down from 2.21 percent in November, the national statistics institute said on its website Thursday. Prices increased 0.41 percent from a month earlier, compared with the 0.36 percent median forecast of 15 analysts surveyed by Bloomberg.

While inflation is at the lower end of the central bank’s 2 percent to 4 percent target range, Banco de Mexico raised its key interest rate last month for the first time since 2008 following an increase by the Federal Reserve. Policy makers said that failing to match the U.S. move could lead to a disorderly selloff in the nation’s currency and spur faster inflation. For months they had expressed concern that the long-awaited rate liftoff in the U.S., Mexico’s primary trade partner, could led to capital outflows.

The slowdown in inflation in Mexico is all the more remarkable given that price-growth is above the central bank targets in Brazil, Peru and Colombia and near the top end of the range in Chile.

Mexico’s central bank, led by Governor Agustin Carstens, expects price increases to be near their 3 percent goal over the next two years.

Still, Mexico will probably increase interest rates by 0.75 percentage point over the next year, matching the U.S., according to the median forecast of economists surveyed by Bloomberg.

The peso lost 0.9 percent to 17.6971 per U.S. dollar at 8:03 a.m. in Mexico City after earlier touching the weakest intraday level since a 1993 re-denomination. In the last year and a half, the currency has tumbled 26 percent, reflecting expectations ahead of the Fed’s increase and the impact of low crude prices on Mexico’s growth and public spending.

Core prices, which exclude energy and farm costs, increased 0.31 percent in December, compared with the 0.32 percent median forecast of analysts surveyed by Bloomberg.

The government’s moves to end monthly gasoline price increases and eliminate long-distance telephone fees have brought down energy and communications costs throughout 2015, outweighing the impact of the weaker currency on living expenses.

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