August 22, 2013 / 1:28 PM / in 4 years

UPDATE 2-Mexico inflation ticks up early Aug, rates seen on hold

* Annual inflation inches up to 3.54 pct
    * Figure marks 2nd month below central bank target ceiling
    * Tomato, gasoline prices lead rise
    * Investors boost bets for no interest rate cut

    By Alexandra Alper
    MEXICO CITY, Aug 22 (Reuters) - Mexico's annual inflation
rate ticked up in the first half of the month, fueled by rising
tomato and gasoline prices, boosting bets interest rates will
remain on hold. 
    Inflation in the 12 months to mid-August inched up to 3.54
percent from 3.53 percent in the year through July, above the
3.43 percent rate expected in a Reuters poll, the country's
national statistics agency said on Thursday. 
    The figure marked the second consecutive first-half month
reading below the central bank's 4 percent ceiling, after a
spike in some fresh food prices pushed inflation above that
level for four months running earlier this year.
    But most analysts don't expect the central bank, the Banco
de Mexico, which cut interest rates to a record low 4 percent in
March, to take advantage of cooler inflation and faltering
growth to cut rates again.
    The finance ministry on Tuesday downgraded its 2013 growth
estimate for Mexico to 1.8 percent, from 3.1 percent, after data
showed the Mexican economy contracted in the second quarter for
the first time since the 2009 recession. 
    "Yes, Banxico (Banco de Mexico) will get dovish, but no, it
will not cut," said Benito Berber, an economist at Nomura
Securities in New York, citing the weak peso and the expected
tapering of the U.S. Federal Reserve's bond-buying program,
which could weaken the peso and boost import prices.
    The peso  lost more than 10 percent earlier
this year when market talk of a U.S. monetary stimulus wind-down
began to swirl, and the currency remains weak, at about 13.16
per U.S. dollar.
    Finance Minister Luis Videgaray said on Thursday he expected
the peso to end the year at around 12.9 per dollar, in line with
his 2013 budget forecasts.  
    Policymakers at Banco de Mexico, which targets inflation of
3 percent with a 1 percentage point leeway, next meet on Sept.
    Yields on short-term Mexican interest rate swaps rose
slightly after the data, as investors increased bets the central
bank would leave interest rates on hold. 
    Consumer prices rose 0.26 percent in the first
half of August, just above expectations for a 0.19 percent rise
and up from the flat prices notched in early July.  
    Price hikes in tomatoes and low-octane gasoline contributed
most to gains in consumer prices for the period, the statistics
agency said.  
    Core consumer prices, which strip out some
volatile food and energy prices, climbed 0.1 percent, below
forecasts for a rise of 0.14 percent and above the 0.04 percent
advance in the first half of July.

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