Mexico fuel prices spur fastest inflation in over four years

Inflation in the 12 months through mid-January was 4.78 percent, the national statistics institute said on Tuesday, the highest half-month reading since September, 2012
Photo: El Universal/Files
24/01/2017
12:02
Reuters
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Mexico's annual inflation shot up in early January to its fastest pace in over four years, stoked by a government-led increase in gasoline prices and raising the chances of another interest rate hike next month.

Inflation in the 12 months through mid-January was 4.78 percent, the national statistics institute said on Tuesday, the highest half-month reading since September, 2012.

A hike in low octane gasoline prices contributed most to the increase, data showed. The government raised fuel costs by up to 20 percent starting Jan. 1, prompting looting, blockades and marches.

Mexicans feeling the pinch from fuel prices are worried about it fanning food and other basics, adding to the unpopularity of the government ahead of elections this year and next.

The government is also grappling with sluggish growth and tough talks with U.S. President Donald Trump about a trade pact that underpins Mexico's economy.

It is expected to raise fuel prices again in February, although if oil prices drop, it could lower prices instead.

A Reuters poll projected the inflation rate would accelerate to 4.51 percent from 3.36 percent in the full month of December, a two-year high. Mexico's central bank expects inflation to head toward 4 percent next year before easing back toward its 3 percent target in 2018.

Banco de Mexico raised its benchmark interest rate by 50 basis points to 5.75 percent in December in a bid to cool inflation after the peso fell to record lows on Trump's victory.

It was the fifth rate hike in 2016 by policymakers concerned the peso could push consumer prices higher. Analysts increasingly expect another rates move at its Feb. 9 meeting.

In a client note after the inflation numbers were released, Capital Economics predicted a 50 basis point hike next month.

The annual reading of the core price index, stripping out some volatile food and energy prices, reached 3.72 percent in early January, below a forecast 3.77 percent, as the weak peso pushed up import prices.

On a monthly basis, Mexican consumer prices rose 1.51 percent during the first half of January, their biggest pickup since the first half of January, 1999. The core price index climbed 0.37 percent.

Separate data on Tuesday showed November economic activity rose by 0.2 percent, as industry was flat and the services sector expanded by 0.2 percent. On an annual basis, the economy expanded by 3.7 percent in November 2016.

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