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 Business News | March 2008 
Mexico's Inflation Jumps in Early March
 Jason Lange & Noel Randewich - Reuters
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Mexico City - Mexico's 12-month inflation jumped unexpectedly in the first half of March to 4.24 percent, putting more pressure on the central bank to delay cutting interest rates despite fears of an economic slowdown.
Mexican consumer prices rose 0.48 percent during the first two weeks of this month, driven by price increases for agricultural products and in the tourism industry, the central bank said on Monday.
That pushed the 12-month rate up more than half a percentage point, from 3.72 percent in February.
Closely watched core inflation, which strips out some volatile food and energy prices, was 0.33 percent during the first half of the month.
Experts in a Reuters poll ECONMX had predicted headline inflation at 0.17 percent and a 0.19 percent rise in core prices.
Mexico's central bank is under pressure to cut interest rates to stimulate Mexico's economy, expected to suffer from a slowdown this year in the United States. But higher inflation gives the bank less room to maneuver.
The early-March price data pushed annual inflation above the 4 percent limit the central bank considers acceptable, although it was still within its forecast range for the year.
Yields on Mexican interest rate futures TII: rose after the news, indicating that investors were scaling back expectations that rates could come down soon.
The June futures contract TIIM8 on the benchmark TIIE interest rate gained 4 basis points to 7.83.
Mexico's peso MEX01 traded 0.50 percent stronger at 10.6650 per dollar after the data was released.
"The inflation data diminished the possibility of a cut in the Bank of Mexico's rate," said a peso trader in Mexico City.
Many Mexico investors have bet the central bank will make two interest cuts this year. Lower interest rates in Mexico would make peso debt less attractive to foreign investors.
The bank expects inflation to rise to as high as 4.5 percent this year before possibly declining to the bank's 3 percent target by the third quarter of 2009.
The economy is seen growing less than 3 percent this year, compared with 3.3 percent in 2007.
Inflation across Latin America has jumped over the past few months as rapidly developing economies like India and China boost global demand for food commodities. At the same time, increasing amounts of grains are being diverted to make biofuels.
Mexico has used price controls on government-administered goods like gasoline and electricity to help keep inflation down.
The Mexican government has also gotten major retailers like Wal-Mart de Mexico, controlled by Wal-Mart Stores Inc., to temporarily freeze prices on key products like tortillas.
In the first two weeks of March in 2007, consumer prices rose 0.08 percent and core prices increased 0.15 percent.
(Reporting by Jason Lange and Noel Randewich; Editing by Dan Grebler; Additional reporting by Michael O'Boyle) |
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