Mexico Prices Rose Less Than Forecast in 1st Half of January

  • Annual inflation rate of 2.48 remains near all-time low
  • Banxico lifted key rate last month for first time since 2008

Mexico’s consumer prices rose less than expected in the first half of January, keeping the annual inflation rate below the central bank’s target.

Prices increased 0.03 percent from the previous two weeks, the national statistics institute said on its website Friday. Analysts expected an increase of 0.09 percent, according to the median forecast of 22 analysts surveyed by Bloomberg. From a year earlier, prices rose 2.48 percent compared with 2.26 percent in the previous two weeks. Faster annual inflation was due in part to less favorable comparisons with a year ago, when the government eliminated long distance phone fees.

Mexico’s central bank raised borrowing costs last month for the first time since 2008 following an increase by the Federal Reserve, even as analysts forecast economic slack to persist and inflation to remain near its 3 percent target in 2016. Banco de Mexico said that failing to match the Fed could lead to a disorderly selloff in the nation’s currency, which hit a record low Thursday, and spur faster inflation.

The report shows "there has been no pass-through" from the weak peso, Marco Oviedo, chief Mexico economist at Barclays Plc, said in an e-mailed response to questions. "Despite inflation remaining below 3 percent, Banxico has no choice but to follow the Fed."

Inflation slowed last year to levels last seen in the late 1960s after the government moved to end monthly gasoline price increases and did away with long-distance phone connection fees, outweighing the impact of the weaker currency on import prices. The peso lost 14 percent last year, the most since 2008, repeatedly reaching record lows.

Central bank Governor Agustin Carstens said in a Bloomberg TV interview Thursday that daily dollar auctions are working well to prevent imbalances in the nation’s currency market, and that the peso should return to previous levels once the dust settles on current volatility. Finance Minister Luis Videgaray said a day earlier that it’s highly probable Mexico will extend the dollar sale program beyond its scheduled expiration next week.

That intervention hasn’t prevented the peso plunging 8 percent this year through Thursday, the worst performance among 16 major currencies tracked by Bloomberg, to the weakest levels since a 1993 re-denomination. The peso gained 1.4 percent to 18.4699 per U.S. dollar at 8:11 a.m. in Mexico City. Policy makers have repeatedly said that the currency’s slump has had a limited impact on consumer prices.

Still, Mexico will probably increase interest rates by 0.50 percentage point this year, compared to a 0.75 percentage point hike for the U.S., according to the median forecast of economists surveyed by Bloomberg.

Core prices, which exclude energy and farm costs, increased 0.08 percent in December, compared with the 0.19 percent median forecast of analysts surveyed by Bloomberg.

The overall increase in prices was held back by low-octane gasoline prices, which fell 2.2 percent from the previous two weeks. Merchandise prices increased 0.07 percent over the same period.

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