Mexico December Inflation Slowed, May Restrain Rates
 Thomas Black - Bloomberg
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Mexico's inflation slowed in December as President Felipe Calderon froze increases on fuel and electricity prices, easing pressure on the central bank to raise interest rates.
The inflation rate fell to 0.41 percent from 0.71 percent in November, the central bank said today. Annual inflation in December was 3.76 percent, within the Bank of Mexico's target of 3 percent inflation, plus or minus 1 percentage point.
Calderon is using subsidies to curb inflation and mitigate the impact of fuel and corporate tax increases and rising food prices on families. His efforts, combined with an economic slowdown in the U.S., may constrain the central bank from further increases after it raised rates in April and October.
"Well-anchored inflation expectations will allow the central bank to keep the rates on hold," said Bartosz Pawlowski, a strategist at TD Securities Ltd. in London.
Higher prices for tourism packages, tomatoes, limes, eggs and home heating fuel boosted inflation in December, the central bank said. Squash, local telephone service, oranges and peppers were less expensive.
December inflation was forecast at 0.35 percent in a Bloomberg survey of 17 economists.
Core inflation, which excludes fresh food and energy costs, was 0.46 percent, the highest in 11 months. The rate was 0.35 percent in November.
Central Bank Rates
The central bank raised its benchmark interest rate to 7.5 percent in October, warning that inflation may accelerate going into 2008.
Since then, Calderon cut highway tolls, convinced retailers to sell basic food products at a discount in the first three months of 2008 and cut industrial power rates by as much as 30 percent. At the same time, President George W. Bush said this week there are increasing signs that the U.S. economy, which buys about 80 percent of Mexico's exports, may be slowing.
"Banco de Mexico has to be careful because the U.S. is now starting to slow, and it's starting to slow rather quickly," said John Welch, an economist with Lehman Brothers in New York.
To contact the reporters on this story: Thomas Black in Monterrey, Mexico, at tblack(at)bloomberg.net |
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