December 21, 2017 / 3:36 PM / 3 months ago

Mexico inflation ticks up in December, pressuring central bank

MEXICO CITY (Reuters) - Mexican annual inflation ticked up slightly in the first half of December to 6.69 percent, data from the national statistics agency showed on Thursday, keeping pressure on the central bank to maintain borrowing costs at elevated levels.

A view of the facade of the Bank of Mexico office building in downtown Mexico City, Mexico, November 17, 2017. REUTERS/Henry Romero

While inflation is expected to ease at the start of next year as 2017 gasoline price increases fade from the national index, it is proving more persistent than had been expected.

The latest figure was up from a rate of 6.63 percent in November and slightly higher than the consensus forecast of a Reuters poll of financial market analysts, which predicted a reading of 6.64 percent.

The Mexican peso MXN=D2 weakened more than 1 percent after the release of the figures.

Mexico’s central bank raised its benchmark interest rate last week by 25 basis points to 7.25 percent, the highest level in nearly nine years. At the same time, the bank said that annual inflation could accelerate in December.

The bank, which targets inflation of around 3 percent, underlined that it was ready to act again to tame price pressures. One member of the bank’s board had wanted to raise interest rates by 50 basis points.

Gabriela Siller, an economist at Banco Base, said in a client note that the latest price data could help spur further rate hikes by the Banco de Mexico early next year.

With the Mexican peso trading at around 19.30 per dollar and assuming that the Federal Reserve continued to raise U.S. rates, there was a 73 percent chance that the Mexican central bank would lift its key lending rate again in February, she said.

The latest Mexican inflation figure was the highest since a 6.74 percent reading in the second half of August. During the whole of August, inflation accelerated to its fastest rate in more than 16 years in Latin America’s second-largest economy.

The data also showed that during the first half of December, prices rose by 0.44 percent, while the closely watched core price index MXCPIH=ECI, which strips out some volatile food and energy prices, climbed by 0.43 percent.

Separate data showed that in seasonally adjusted terms, the Mexican economy grew in October by just 0.1 percent compared to the previous month, when economic activity was hit hard by two major earthquakes that killed more than 450 people.

Compared to the previous year, the economy expanded by 1.5 percent, the data showed.

Writing by Dave Graham; Additional reporting by Daina Beth Solomon; Editing by Phil Berlowitz and Meredith Mazzilli

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