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 Business News | June 2008 
Mexico Inflation Accelerates to Fastest in 3 Years
 Jens Erik Gould - Bloomberg
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Mexico's annual inflation rate jumped more than economists forecast last month to its highest in more than three years, driven by food, housing and air transportation costs.
Mexican consumer prices rose 4.95 percent from a year earlier, the most since December 2004, the central bank said today on its Web site. Economists expected annual inflation of 4.90 percent, according to analysts surveyed by Bloomberg.
High global food and energy costs are boosting prices for other products as inflation spreads, increasing the risk that the central bank may raise borrowing costs sometime this year, said Bartosz Pawlowski, a strategist at TD Securities Ltd. in London.
"I'm afraid there are some signs of contamination," Pawlowski said. "This will lead to hawkish language from the central bank."
Core inflation, which excludes some food and energy costs, accelerated to 4.86 percent annually and 0.50 percent monthly, the bank said.
May's consumer prices fell 0.11 percent from a month earlier. Seasonal cuts in electricity prices slowed the monthly inflation rate, the bank said.
Debt yields rose today as traders bet that inflation will prompt central bankers to raise the country's benchmark 7.5 percent interest rate.
Yields Rise
Yields on Mexico's benchmark 10 percent bond due December 2024 rose 7 basis points, or 0.07 percentage point, to 8.53 percent at 11.16 New York time. The price today fell 70 centavos to 112.96 centavos per peso, according to Banco Santander SA.
Mexico's central bank, known as Banxico, kept its benchmark interest rate unchanged for a seventh month in May while also expressing heightened unease about the outlook for inflation.
President Felipe Calderon announced May 25 a plan to eliminate import tariffs on wheat, corn, rice and beans and cut in half a tariff on powdered milk to help lower food prices.
High food and energy prices haven't yet affected salaries or costs for services, and have mostly had an effect on processed foods prices, said Gabriel Casillas, economist at Banco UBS Pactual in Mexico City.
The bank will keep rates unchanged at least for the next two months because annual inflation is still within its forecast of between 4.5 percent and 5 percent for the second and third quarters, Casillas said.
"Banxico will hold as long as wages and inflation expectations remain anchored," Casillas said. "If we don't see inflation slow after June, Banxico would have to change to a hawkish tone and prepare the market for a hike."
Calderon urged the central bank on June 4 to take into account the spread, or difference, in benchmark interest rates between his country and the U.S. when setting monetary policy. Relatively higher rates in Mexico can strengthen the peso, hurting exporters.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net. |
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