Core prices stir concern in Mexico

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Inflation in Mexico accelerated faster than expected in February, official data showed, with underlying price pressures hitting their highest level in over two decades, feeding expectations the central bank will hike interest rates higher.

Figures from the national statistics office INEGI on Wednesday showed consumer price inflation advanced to 7.28% from 7.07% in January, a rate more than doubles the Bank of Mexico’s target. A February reading of 7.23% had been forecast in a Reuters poll.

Core inflation, which strips out some volatile items, accelerated by nearly fourth-tenths of a percentage point to 6.59%, the highest rate since mid-2001.

Bank of Mexico (Banxico) board member Jonathan Heath said on Twitter that core inflation had likely not peaked in February, forecasting it would be above 6.7% in March, and he warned that the Ukraine-Russia conflict could lift prices higher.

“High inflation will be more persistent than we had anticipated, both in Mexico and globally,” he said.

Banxico targets inflation of 3%, with a one percentage point tolerance range above and below that. In February the bank raised its benchmark interest rate by 50 basis points, a sixth consecutive rise, flagging inflation risks.

Still, Mexico’s economy stagnated in the fourth quarter, and Heath last week noted that higher borrowing costs would not make recovery easier.

Capital Economics economist Nikhil Sanghani said that while Mexico is rolling out more fuel subsidies to soften the blow of soaring energy prices, higher costs for food and goods would likely push headline inflation to 7.5% in the coming months.

“Against this backdrop, there is a growing chance that Banxico will increase the pace of tightening at its meeting later this month,” Sanghani said in a research note.

Compared with the previous month, Mexican consumer prices rose 0.83% in February, the INEGI data showed. The core index increased 0.76% over the same period.

Source: El Financiero

Mexico Daily Post