| | |  Business News | February 2009 
Mexico Consumer Prices Increase More Than Forecast
 Jens Erik Gould - Bloomberg
go to original
Mexico’s consumer prices rose more than economists forecast in the first half of February as costs climbed for housing, chicken and beans.
Prices rose 0.17 percent in the first 15 days of the month, exceeding the 0.12 percent median estimate of 14 economists surveyed by Bloomberg. Annual core inflation, which excludes some food and energy costs, accelerated to 5.81 percent, the highest in more than seven years.
The increase in the underlying inflation rate signals that a weaker peso is driving up prices for imports, and that may prevent the central bank from cutting the benchmark interest rate next month, said Gabriel Casillas, an economist at UBS AG.
“It’s likely that the central bank will stop its easing cycle,” Casillas said from Mexico City.
The central bank last week reduced its benchmark interest rate by a quarter point, less than economists forecast, to 7.5 percent. A weakening peso and above-target inflation limited the room available to policy makers to lower borrowing costs to boost the economy.
Annual inflation was 6.25 percent in the first half of February, matching the top end of the central bank’s forecast of between 5.75 percent and 6.25 percent in the first quarter. The bank predicts inflation will slow to no more than 5.75 percent in the second quarter.
Annual inflation in the second half of January was 6.28 percent.
Peso Pressures
Mexico’s currency has tumbled 32 percent over the past six months, the second-worst performance against the dollar among the world’s major currencies, as a deepening recession in the U.S. dries up dollar flows from exports, remittances, tourism and foreign direct investment.
Banco de Mexico bought pesos directly from banks yesterday, and purchased $155 million worth of pesos from banks last week, to shore up the currency, the bank said today. The central bank last week also purchased $400 million worth of pesos through auctions, according to the statement.
Bank Governor Guillermo Ortiz said Feb. 11 that policy makers will continue to intervene in the market for the “foreseeable future.” The peso rose 0.7 percent to 14.8466 at 11:10 a.m. New York time.
Lower lending rates can help spur demand across the economy by reducing the costs of borrowing, prompting businesses to invest and consumers to buy on credit. A lower key lending rate can also fuel inflation.
Rapid Contraction
While today’s report shows that the depreciating currency is driving up prices, policy makers will again reduce borrowing costs in coming months in an effort to bolster a “very rapidly contracting economy,” said Rafael de la Fuente, an economist at BNP Paribas in New York.
“The central bank will have to step up its pace of rate cuts in coming months,” De la Fuente said in a report.
Mexican economic data has reflected the slumping economy in recent weeks. The country reported the biggest decline in industrial production in seven years, the steepest drop in retail sales since March 2002 and the first quarterly contraction in gross domestic product since 2003.
The central bank last month lowered its 2009 economic growth forecast, saying the economy may shrink as much as 1.8 percent this year because of the global financial crisis. The economy hasn’t contracted for a full year since 2001.
On Jan. 7, President Felipe Calderon announced an economic stimulus package that lowered energy prices, expanded unemployment benefits and increased infrastructure spending. The government says the plan will add 120 billion pesos ($8.2 billion) to the economy.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net. |
|
| |
Vallarta Weddings
Tell a Friend
Site Map
Print this Page
Email Us