Mexico's Inflation Holds Below Target in Early June

Jun.23 (Dow Jones) -- Mexican consumer prices rose less than expected in the first half of June, leaving inflation below the central bank's 3% target as lower food prices partly offset increases in energy and transport costs.

The consumer price index edged up 0.02% in the first two weeks of the month, for an annual inflation rate of 2.55%, compared with 2.6% at the end of May, the National Statistics Institute said Thursday. The increase was below the 0.11% median estimate of 12 economists polled by The Wall Street Journal.

Fresh produce prices fell, while energy and transport costs, including gasoline and airfares, rose. Core CPI, which excludes energy, fresh fruit and vegetables, stood at 2.98% after rising 0.16% in the first two weeks of June. Core nonfood goods, which reflect the effect of the weaker currency on consumer prices, were up an annual 3.42%.

The Bank of Mexico expects inflation to remain under 3% in coming months but sees the rate moving temporarily above the target toward the end of the year.

"The tide is turning and several indicators point to rising pressure ahead," Morgan Stanley said in a report. "The impact from the weaker exchange rate --already evident in accelerating prices for tradable goods -- should become more noticeable as the cushion from lower import prices has been fading."

Flexible gasoline prices as Mexico moves gradually toward an open market for the fuel are also expected to push inflation up during high-demand season in the U.S., since Mexico imports more than half of the gasoline it consumes.

Mexicans aren't seeing the kind of generalized upward pressure on prices that Colombia and Brazil have suffered, although they are paying more for medicine, electronics and other durable goods, Morgan Stanley said. "One of the most encouraging aspects of Mexico's low inflation is how well prices have behaved in the face of the weaker peso."

With inflation still below target and the economy growing at a moderate rate, the Bank of Mexico has held the overnight interest rate target at 3.75% since February. Its next policy meeting is scheduled for June 30.

The statistics institute also reported a slowdown Wednesday in April economic activity, which fell 1.2% from March with declines in both industrial production and services. Economic output was up 3% from April of 2015.

Fecha de publicación: 23/06/2016