| | |  Business News | June 2009 
Mexico Inflation Slows to 7-Month Low in May
 Robert Campbell - Reuters
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June 09, 2009
Mexico City - Mexico's annual inflation slowed in May to a seven-month low, leaving the way clear for the central bank to keep lowering borrowing costs to help pull the economy out of its worst recession since 1995.
Twelve-month inflation fell to 5.98 percent as seasonal electricity subsidies kicked in and food price increases slowed, the central bank said on Tuesday.
The inflation rate has not been below 6.0 percent since October 2008.
The central bank has been slashing interest rates in an effort to prop up domestic demand and although it indicated that future rate cuts would come at a slower pace, economists still expected the bank to cut rates at its next policy meeting on June 19.
Mexico's economy shrank 8.2 percent year over year in the first quarter as tumbling demand from American consumers for Mexican-built cars, televisions and other goods slammed the U.S.-focused export sector.
"Producer price trends are also a good sign as they reflect the recent stability of the peso," said Pedro Tuesta of 4Cast in Washington.
"If the peso remains controlled below 13.50, we believe the central bank still has room to cut 50 basis points on June 19."
RECOVERY SEEN STARTING
Central bank officials have worried that the sharp fall in the value of the peso against the dollar MEX01 could fuel inflation by pushing up the price of imported goods.
The peso plunged last year as investors dumped emerging market assets, briefly pushing the currency over 15 to the dollar.
The inflationary effect of the exchange rate has been blamed in part for the persistence of relatively high inflation in Mexico, which remains nearly double the central bank's long-term target of 3 percent.
Central Bank Governor Guillermo Ortiz said last week that Mexico's recession may be touching bottom and a recovery should be in sight possibly by the third quarter or by 2010.
However, the second quarter is expected to be grim due to the outbreak of the novel H1N1 influenza virus, which prompted the government to shut down large swaths of the economy in late April and early May.
Mexican interest-rate futures edged lower on the data as investors appeared more comfortable with the continued downward trend in benchmark interest rates.
Consumer prices fell 0.29 percent in May, more than analysts had expected. The closely watched core consumer price index, which strips out some volatile food and energy prices, rose 0.26 percent during the month, less than economists had forecast in a Reuters poll.
(Reporting by Robert Campbell, Cyntia Barrera and Luis Rojas; Editing by James Dalgleish and Jan Paschal) |
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