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 Business News | April 2008 
Mexico's 12-Month Inflation Shoots Up to 4.25%
 Jason Lange - Reuters
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Mexico City – Mexican inflation in March shot past the limit the central bank considers acceptable, keeping pressure on policy-makers to hold interest rates steady despite fears of an economic slowdown.
Some investors have been betting that a slowing economy would allow Mexico's central bank to cut official interest rates in coming months.
But March data showed 12-month inflation surged to 4.25 percent from 3.72 percent in February, the central bank said on Wednesday. The central bank says it can live with inflation as high as 4 percent.
“With this, the central bank won't take a risk in lowering rates soon,” said Alfredo Thorne, senior economist for Latin America at JPMorgan Chase & Co.
Central bank Gov. Guillermo Ortiz said last week that policy makers are in a jam because inflation pressures and growth risks make it difficult to decide what level interest rates should be at.
Central banks raise interest rates to curb inflation, though lower rates can help foster economic growth.
Inflation across Latin America has jumped over the past few months as rapidly developing economies like India and China boost global demand for food commodities, while increasing amounts of grains are being diverted to make biofuels.
At the same time, economists see a possible U.S. recession hitting economic growth in Mexico, which sends about 80 percent of its exports to its northern neighbor. The government predicts the economy will expand 2.8 percent this year, down from 3.3 percent growth in 2007.
TEMPORARY PRESSURE
Mexico's headline inflation rose 0.72 percent in March from the previous month, driven by gains in prices for both processed foods and fresh fruits and vegetables like tomatoes, the central bank said.
It was the biggest increase for the month of March since 1999 but only slightly above the 0.70 percent average forecast of analysts polled by Reuters.
Closely watched core inflation, which strips out some volatile food and energy prices, was 0.50 percent during the month. That pushed 12-month core inflation to 4.34 percent, the fastest pace since 2002.
Thorne said the strong role of agricultural prices in driving March inflation was a good sign because such pressures tend to be temporary. He said inflation should peak in June and the central bank could begin cutting rates in July.
Policy makers have held Mexico's benchmark overnight interest rate steady at 7.5 percent since October. The central bank has been forecasting since last year that average quarterly inflation would spike to as high as 4.25 percent during the first quarter of this year.
Wednesday's data keeps inflation within that range. The bank sees inflation peaking as high as 4.5 percent during the second and third quarters before steadily dropping toward 3 percent by the end of 2009.
“Inflation remains under pressure,” HSBC said in a note to clients. “At the same time, an important part of the data shows a temporary sort of phenomena.”
Mexico's peso currency was slightly stronger and hanging near a two-year high, up 0.07 percent from Tuesday at 10.5605 per dollar.
(Editing by Leslie Adler) |
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