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 Business News | November 2006 
Mexico Inflation Climbed to 15-Month High in October
 Thomas Black - Bloomberg
Mexico's annual inflation rate rose to a 15-month high in October as the price of tomatoes, electricity, milk and onions surged.
Inflation quickened to 4.3 percent in the 12 months through October from 4.1 percent in September, the central bank said. Consumer prices rose 0.44 percent in the month after increasing 1.01 percent the previous month.
Central bankers will likely wait for annual inflation to fall back within their annual target range of 2 percent to 4 percent before considering resuming interest rate reductions to bolster growth, said Rafael de la Fuente, an economist with BNP Paribas. Core inflation readings, which exclude energy and food prices that are driving up inflation, suggest that the pickup in overall inflation will fade soon, de la Fuente said.
``The market recognizes a lot of non-core items are out of the central bank's hands,'' de la Fuente said in a telephone interview from New York.
Core consumer prices rose 0.27 percent in October after rising 0.3 percent in September. The rise in core consumer prices was in line with the 0.27 percent median forecast in a Bloomberg survey of 16 economists. The 0.44 percent overall monthly rate was lower than the 0.54 percent median forecast.
Central Bank Governor Guillermo Ortiz said last month annual inflation will begin to ease by the end of the year. He said he first expects it to quicken to as much as 4.5 percent in October and November.
`Credibility'
The yield on Mexico's benchmark peso bond maturing in December 2024 dropped to 8.08 percent today from as high as 10.02 percent on June 20, a sign investors are confident that the inflation surge is temporary.
``The central bank has achieved a high level of credibility because of the discipline it has,'' said Luis Raul Rodriguez, an economist with the Mexico City brokerage Vector Casa de Bolsa SA.
Banco de Mexico's next move on rates is likely to be a reduction once inflation decelerates and Mexico's economy begins to weaken on the back of slowing U.S. demand, de la Fuente said. The bank has held its target rate at a two-year low of 7 percent since April, following nine cuts that reduced the rate from 8.75 percent in August 2005. De la Fuente expects the Federal Reserve to begin lowering the benchmark U.S. rate in January.
``That will give more room for the monetary authorities in Mexico to cut rates,'' de la Fuente said.
Hurricane Lane
Mexico's central bank has said that the jump in consumer prices doesn't require increases in its target rate. Much of the increases in food prices were caused by Hurricane Lane, which swept across the agricultural state of Sinaloa in September, causing damage to crops. The government also ended a summer subsidy on electricity prices in October and November, pushing up energy costs, Rodriguez said.
Inflation expectations for 2007, measured by the central bank's monthly survey of economists, have remained stable. The average of 34 economists' estimates in the bank's October survey forecast yearend inflation of 3.5 percent. The October survey showed 2006 yearend inflation at 4 percent.
Mexico's control over inflation allowed the government to sell a 30-year, fixed-rate bond in pesos for the first time in October, the longest-maturity bond in local currency in Latin America.
To contact the reporter on this story: Thomas Black in Mexico City at tblack@bloomberg.net |
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