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Mexican Inflation Creeps Higher

James Boston
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Mexican Inflation Creeps Higher

Subsequent to the surprise 50 basis point interest rate cut in June, the Banco de Mexico last Friday kept it’s key lending rate at the record low of 3% citing an expected easing in the inflation situation as a reason for maintaining the relatively loose monetary policy stance. Today’s Consumer Price Index (CPI) numbers are evidence that the Central Bank may not have called it correctly.

The headline CPI rate for the month of August has just been announced as 4.15%% when measured year on year, this represents a creeping of July’s elevated 4.07% reading but undershoots the forecasted 4.2%. Month on month the general inflation measure is showing price growth of 0.36%, compared to the 0.28% expansion seen in July and the market predicted 0.30% reading expected today. The Core month on month CPI is at a level of 0.21%, this changes from 0.19% in July and the anticipated figure was 0-20%.

The inflation target set by the Banco de Mexico of 3.0% for the year looks likely not to be reached between now and year end, consensus is however that the Bank will be content with the pace of price growth trending in the desired direction and that they have accepted that a realistic outcome would be for inflation to reach this targeted level early in the first quarter of next year. Domestic demand has begun to pick up but there is ample slack in the economy to absorb any measurable upward pressure on prices.

Overall the Mexican economy is in a stronger position than it was at the beginning of this year. First quarter GDP growth surprised many on the down side as a fall off in international demand hit trade, particularly in the manufacturing sector. Second quarter growth however bounced back nicely and if this holds up Mexico should just about reach it’s targeted 2.7% GDP growth target for 2014.

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