Mexico central bank seen raising rates, maybe for last time this year

Ray Di Pasquale Clinton Community College's new president talks about low college enrollment at the forum
Ray Di Pasquale Clinton Community College's new president talks about low college enrollment at the forum

24 June, 2017

Mexico's annual inflation quickened to 6.16 percent in May, well above the central bank's target of 3 percent, plus or minus one percentage point.

However, a continuation of above-trend economic growth should lower slack and help turn inflation higher in the second half of this year, permitting the central bank to hike the overnight rate in October, added TD Economics.

But the peso has rallied from a record low in January as U.S. President Donald Trump backed away from threats to impose big tariffs on imports from Mexico and toward a renegotiation of the North American Free Trade Agreement.

CPI common, which the central bank says is the best gauge of the economy's underperformance, held at 1.3 percent.

Food prices fell on an annual basis for the eighth month in a row, down 0.1 percent as consumers paid less for meat and fresh fruit.

It noted natural gas prices also fell 4.9 per cent in the same 12-month period, "providing the largest downward contribution to the natural gas index at the national level".

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The May inflation rate reduction was accompanied by declines in electricity, bakery products and Internet access services, the agency said in its latest monthly report.

Gasoline, however, remained one of the biggest upward contributors to inflation last month despite the weakened price growth.

Consumer prices in B.C. rose at an annual rate of 1.9%. Statistics Canada said this was largely attributable to a move by the government of Ontario - Canada's most populous province - to legislate lower power prices for households.

Food prices fell 0.1 per cent last month compared to a year earlier, shelter prices rose 1.9 per cent and transportation increased 2.2 per cent.

"We don't see this run as changing the broader narrative of a generally improving Canadian outlook which needs less monetary accommodation, although it does suggest that July is too soon for the Bank of Canada to raise interest rates", said CIBC economist Nick Exarhos.

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