Mexico Consumer Prices Rise More Than Expected in Early July

  • Annual inflation rate climbs towards Banxico 3 percent target
  • Banxico increased key interest rate to 4.25% after peso plunge

Mexico’s consumer prices rose more than expected in early July, led by gasoline and transportation, lifting the annual inflation rate to the highest level since February.

Prices rose 0.28 percent from two weeks earlier, the national statistics institute said on its website Friday. The median forecast of 24 analysts surveyed by Bloomberg was for a 0.24 percent increase. From a year earlier, prices increased 2.72 percent, compared with 2.53 percent at the end of June. Banco de Mexico targets inflation of 3 percent.

Mexico raised its benchmark interest rate more than expected last month, to 4.25 percent from 3.75 percent, as the U.K.’s decision to leave the European Union knocked down the peso and overshadowed concern about a slowdown in domestic growth. While annual inflation has remained below the central bank’s target for months, the widest current account deficit in 17 years and continued peso weakness are raising concern of an increase in consumer prices spurred by the currency’s drop.

With inflation remaining below the central bank’s target, and with policy makers already having increased Mexico’s key rate one percentage point this year, it’s unlikely they’ll lift it again before the Federal Reserve, said Marco Oviedo, chief Mexico economist at Barclays Plc.

Banxico’s 2016 increase is "an important adjustment for a year given the timeframe when monetary policy acts, and inflation is still well behaved," Oviedo said.

The peso rose 0.1 percent to 18.5980 per dollar in morning trading in Mexico City. The currency hit a record low after the Brexit vote and was down 7.4 percent this year through Thursday, the worst performer among major currencies tracked by Bloomberg after the British pound.

Core prices, which exclude energy and farm costs, increased 0.11 percent in the first half of July from two weeks earlier, compared with the 0.15 percent median forecast of analysts surveyed by Bloomberg.

Low-octane gasoline prices increased 1.5 percent from two weeks earlier, contributing the most to the increase in prices. Metro and bus prices also climbed.

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