WRAPUP 2-Mexico inflation cools more than expected in early June

Mon Jun 24, 2013 10:39am EDT

Related Topics

* Headline inflation eases to 4.24 percent vs poll's 4.41
percent
    * Analysts waiting to see impact of weaker peso
    * Jobless rate falls in May despite slowing growth

    MEXICO CITY, June 24 (Reuters) - Mexican inflation cooled in
early June as prices for fresh food  fell, backing central bank
forecasts for tamer prices in the second half of the year,
although a weak peso could still upset the inflation outlook.
    Inflation in the 12 months to mid-June eased to 4.24 percent
from 4.63 percent in the year through May, below the 4.41
percent expected in a Reuters poll, data released on Monday
showed. 
    Although inflation is set to overshoot the central bank's 4
percent ceiling for a fourth straight month in June,
policymakers are confident price gains will cool further in the
second half of the year, partly due to weak growth in Latin
America's number two economy.
    Markets have priced out the chance of further interest rate
cuts after a surprise decrease in March to the current 4 percent
as expectations mount for an easing in stimulus from the U.S.
Federal Reserve, which may weaken the peso further and push up
import prices. 
    But some economists still see a window for further easing
later in the year, although the weak currency -- which has
fallen almost 4 percent since Fed Chairman Ben Bernanke said
last week that U.S. policymakers might tone down bond purchases
later this year -- remains a wild card.
    "The thing that is not clear is how permanent the fall in
the peso is and how that will affect prices in coming months,"
said 4Cast economist Pedro Tuesta.
    BNP Paribas economist Nader Nazmi, who expects further
easing in September and October, said the normalization of
agricultural prices should bring inflation below 4 percent in
the fourth quarter.
    "I think it opens up the door for the central bank to cut
the policy rate given growth is slowing," he said. 
    Mexico is closely linked to the United States and growth
slid to a crawl in the first quarter, although officials expect
a recovery in the second half of 2013. 
    
    FEW DOMESTIC PRESSURES    
    Data from the national statistics agency showed the 0.05
percent fall in prices, which compared with expectations for a
0.11 percent rise, was driven by a drop in fresh food prices,
especially green tomatoes and limes.
    Core consumer prices, which strip out some volatile food and
energy prices, rose 0.07 percent, compared with forecasts for a
rise of 0.12 percent. Inflation in services, a key gauge of
domestic price pressures, remained modest at 2.5 percent.
 
  
 
    Weak growth tends to dampen inflation pressures and also
pushed up unemployment in the first months of 2013, although
seasonally adjusted figures showed a welcome dip in May.
           
                      May         April           Year ago
 Jobless rate (s/a)   5.07        5.14            4.98
 Jobless rate         4.93        5.04            4.83
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