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Sharp Swing In Mexican Inflation

James Boston
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Sharp Swing In Mexican Inflation

The retail sector in Mexico is still struggling to gain momentum as evidenced by this morning’s Retail Sales Figures. The annual rate is now showing at 1.6% growth in contrast to a prior reading of -0.4%, the market had expected this number to grow to 0.5%. Month on month the change is -0.1%, by comparison the previous monthly change was 1.1% and the market was anticipating a contraction of up to -0.8% with this reading.

Mexico’s Central Bank held the base rate steady at 3.0% at last week’s policy meeting, this followed a cut to this record low level in June in an effort to create some economic stimulus. The fact that the rate did not fall further at the most recent meeting implies that the monetary authorities see some signs of growth taking hold. This was backed up by a statement from a key Mexican Central Banker yesterday who predicted stronger growth for the country in the second half of the year.

This is at odds with the Central Bank Governor, Agustin Carstens, who noted just last month that the Bank was preparing to revise down it’s growth forecasts for 2014 to closer to 2.3%, the latest annualised growth reading for Mexico was 1.8% which represented a strong increase on the prior showing of just 0.7%. When recently challenged on the apparent disparities in outlook among the members of the monetary policy committee, Carstens noted that the quarterly inflation report due next month would contain a combined outlook from the Central Bankers, however he stopped short of stating what this might be.

The Central Bank permits a maximum inflation level of 4%, the current rate is now running very close to this after ticking up last month to a level of 3.75%, the Bank would prefer this rate to be closer to the 3% level and so any further interest rate cuts may have to wait until price growth settles down.

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