| | |  Business News | June 2009 
Mexico Consumer Prices Fall Most in Two Years in May
 Jens Erik Gould - Bloomberg
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Mexico’s consumer prices fell the most in two years in May on reductions in costs for electricity, tourist packages and produce.
Prices decreased 0.29 percent in May from a month earlier, and the annual inflation rate fell to 5.98 percent, the central bank said today. Core consumer prices, which exclude some food and energy costs, rose 0.26 percent from the previous month.
Annual inflation was within the central bank’s second- quarter forecast of no more than 6 percent for the first time, which will probably give policy makers more leeway to cut the benchmark interest rate by a half point this month, said Bertrand Delgado, senior Latin America economist at RGE Monitor.
“This will help the central bank in terms of allowing them to go ahead and continue cutting rates,” said Delgado, who is based in New York.
Economists expected consumer prices to fall 0.28 percent from the prior month and an annual inflation rate of 6.01 percent, according to the median estimates of analysts surveyed by Bloomberg.
Inflation is usually negative in May because of scheduled reductions in electricity rates in many northern states, according to BNP Paribas.
Peso Bonds
Mexico’s peso bonds rallied, pushing yields down for the first time in three days, after the inflation report.
Yields on the 10 percent bond due December 2024 dropped two basis points, or 0.02 percentage point, to 8.35 percent at 11:36 a.m. New York time. The bond’s price rose 0.19 centavo to 114.29 centavos per peso, according to Banco Santander SA.
Mexico’s central bank has reduced the benchmark interest rate for five consecutive months, including three straight reductions of 0.75 percentage point, in a bid to boost production and consumer demand during a recession.
Weak economic activity, underscored by the auto production report for May released yesterday, will also encourage the bank to keep cutting borrowing costs, Delgado said.
The bank will cut rates to 4 percent by the third quarter and annual inflation will slow to 4 percent by the year-end, according to Delgado’s forecasts.
Mexican production of cars and light trucks fell 39.4 percent last month from May 2008, the nation’s Automobile Industry Association said. The economy shrank 8.2 percent in the first quarter as the global financial crisis sapped demand for exports, job losses increased and remittances slumped.
The bank will only cut the key lending rate by a quarter point this month even as inflation slows because policy makers may be concerned that global commodities prices are on the rise, said Ricardo Aguilar, an economist with Invex Casa de Bolsa SA.
“The bank can’t ignore the recent increase in commodities,” said Aguilar, who is based in Mexico City. “We don’t expect them to aggressively cut rates.”
Crude oil futures traded on the New York Mercantile Exchange have risen 35 percent to $69.13 per barrel since the beginning of last month.
To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9(at)bloomberg.net. |
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