| | |  Business News | November 2008 
Mexico May Report Fastest Inflation Since 2001
 Jens Erik Gould - Bloomberg
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 |  | The central bank has to be very cautious about the peso and should proceed slowly with rate cuts.
- Alonso Cervera |  | | | |
Mexico's central bank may report the fastest annual inflation in seven years, making it unlikely policy makers will reduce the key lending rate before the end of the year.
Analysts say consumer prices rose 0.6 percent and annual inflation was 5.7 percent in October, according to the median of 10 estimates in a Bloomberg survey. That would be the highest inflation rate since October 2001. The bank is scheduled to report October consumer prices on Nov. 7 at 10 a.m. New York time.
Faster inflation and a weakening peso will make it difficult for the central bank to cut its benchmark interest rate in November even as a slumping world economy threatens growth in Mexico, said Alonso Cervera, a Latin America economist with Credit Suisse Group AG in New York.
"The central bank has to be very cautious about the peso and should proceed slowly with rate cuts," said Cervera, who forecasts inflation at 5.8 percent in October and says the bank won't cut rates before January. "The bank shouldn't rush to any conclusions."
It's too early to tell how the depreciating peso will affect inflation because currency markets are volatile and businesses have yet to adapt prices to the weaker currency, Cervera said. The central bank said on Oct. 29 that the peso will affect consumer prices if the currency remains weak.
The peso plunged 14.7 percent in October, its worst monthly performance since December 1994, when Mexico abandoned a currency peg to keep the nation from depleting its foreign reserves. The peso has weakened as the global credit crisis slows economies around the world, driving down the price of oil, Mexico's biggest source of dollars.
Peso, Stocks, Bonds
Yields on the government's benchmark 10 percent bond due in 2024 fell 253 basis points, or 2.53 percentage points, to 8.87 percent. The bond's price rose 19.94 centavos to 109.63 centavos per peso, according to Banco Santander SA.
The peso gained 4.35 percent last week, its second weekly gain in three weeks. The peso closed at 12.8259 per dollar on Oct. 31, from 13.3842 on Oct. 24.
Mexico's benchmark Bolsa index rose 20 percent last week to 20,445.32, the biggest weekly gain in two decades. Industrial Penoles SAB, the world's biggest primary silver producer, surged 57 percent to 115.55 pesos as silver had its biggest weekly gain in a month.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net. |
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