| | |  News Around the Republic of Mexico | February 2009 
Mexico Prices Increased Less Than Forecast in January
 Jens Erik Gould - Bloomberg
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Mexico’s consumer prices rose less than forecast in January amid slowing consumer demand and a government plan to lower energy costs, giving central bank policy makers more room to reduce lending rates.
Prices increased 6.28 percent from a year earlier and 0.23 percent from a month earlier as costs fell for vegetables, electricity and tourist packages, the central bank said. Economists forecast an annual inflation rate of 6.37 percent and monthly inflation of 0.32 percent, according to the median estimates of analysts surveyed by Bloomberg.
The government plan to reduce heating gas costs slowed inflation sooner than analysts expected, said Jimena Zuniga, a Latin America economist at Barclays Capital in New York. Today’s report signals inflation may be coming under control, allowing the central bank to further lower the key lending rate this month, she said.
“It buys degrees of freedom for the central bank,” said Zuniga, who forecasts policy makers will reduce the rate to 5.25 percent by mid year from 7.75 percent currently.
Weakening consumer demand and President Felipe Calderon’s plan to lower energy costs will help slow annual price increases to less than 4 percent by the end of the year, the central bank said last month. Inflation probably peaked in December, when it reached a seven-year high of 6.53 percent, it said.
Mexico’s central bank reduced its benchmark interest rate for the first time in almost three years in January to bolster a slumping economy hurt by the U.S. recession.
Shrinking Economy
Gross domestic product may shrink 0.8 percent to 1.8 percent this year, the bank forecasts. Formal employment fell by 128,122 jobs in January, according to the Social Security Institute. Mexico has lost almost 500,000 formal jobs since November, the worst performance in the labor market since the Tequila crisis in the mid-1990s, Goldman Sachs Group Inc. analysts said in a report.
Weaker economic activity gives the central bank “margin to relax” monetary policy, the bank said Jan. 27. Still, inflation didn’t slow enough in January for the central bank to cut the interest rate by more than a half point at the Feb. 20 meeting, Benito Berber, an economist at RBS Greenwich Capital Markets in Greenwich, Connecticut, said in a report.
Banco de Mexico will reduce the benchmark interest rate by a half percentage point this month, according to the median forecast of economists surveyed Feb. 4 by Citigroup Inc.’s Banamex unit.
Core inflation, which excludes certain food and fuel prices, slowed to 0.43 percent in January from a month earlier, the bank said.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net. |
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