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UPDATE 2-Mexico annual inflation eases off eight-month high in Feb
March 7, 2014 / 2:23 PM / 4 years ago

UPDATE 2-Mexico annual inflation eases off eight-month high in Feb

MEXICO CITY, March 7 (Reuters) - Annual inflation in Mexico cooled off an eight-month high in February as the effect of new taxes from a fiscal reform eased, underpinning chances the central bank will keep interest rates on hold this year.

Inflation in the 12 months through February was 4.23 percent, the national statistics agency said on Friday, down from January’s 4.48 percent pace but just above the 4.2 percent forecast in a Reuters poll.

February marked the second month in which inflation strayed above the central bank’s 4 percent ceiling, as the government rolled back fuel subsidies and a fiscal reform approved last year drove up prices on soft drinks and junk food.

Mexico’s central bank predicts annual inflation will remain above the 4 percent ceiling in the first months of 2014 before falling below that level later in the year.

“While headline inflation was over target for a second month in Mexico, that is not enough to make the central bank consider a rate hike,” Bill Adams, an economist at PNC Financial Services Group said in a statement, noting that the spike had not yet infected other prices.

A poll published by Banamex on Wednesday showed analysts continue to expect Banxico to keep rates on hold until early 2015.

Consumer prices rose 0.25 percent in February, pushed up by a rise in lime, gasoline, and junk food prices. The figure was well below January’s 0.89 percent increase yet higher than an expected 0.23 percent.

Core prices, which strip out some volatile food and energy costs, increased 0.28 percent after rising 0.85 percent in the prior month. Expectations were for a 0.29 percent rise.

Mexico’s central bank kept its main interest rate on hold at a record low of 3.50 percent in January, to support flagging growth despite the uptick in inflation.

Data last month showed Mexico’s economy slowed sharply in the fourth quarter as industry ground to a halt and the pace of services growth dropped, dragging annual growth to a four-year low and clouding hopes for a robust recovery this year.

Mexican Finance Minister Luis Videgaray on Thursday affirmed the government’s forecast for 3.9 percent growth this year, even as analysts polled by the central bank lowered their growth estimates to just 3.4 percent for 2014.

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