Mexico inflation up by the most in 18 years as fuel costs skyrocket

Mexico’s inflation rate jumped by the most in 18 years and more than economists expected as gasoline prices surged and the peso slumped, pressuring policy makers to raise the benchmark lending rate further.

Consumer prices increased 4.78 percent in the first half of January from the year earlier, well above the central bank’s 3 percent target and compared with 3.24 percent in late December, the national statistics institute said on its website Tuesday. Prices climbed 1.51 percent from two weeks earlier, more than the 1.27 percent median forecast of 18 economists surveyed by Bloomberg News.

Mexico is facing soaring inflation, even as economic growth remains weak amid uncertainty over U.S. President Donald Trump’s threats to renegotiate free trade and as local fuel costs jump. Economists now see the central bank’s overnight rate rising 1.25 percentage points to 7 percent this year as inflation ends the year far above the target, according to a Citibanamex survey.

Inflation’s fall from grace is all the more stark because it remained below the target for much of the past two years and hit a record low in late 2015. The currency’s 20 percent depreciation since the start of last year is now weighing on prices, as is a surge of up to 20 percent in gasoline prices as Mexico removes subsidies. Early January’s annual inflation is the fastest since 2012.

Still, central bank Governor Agustin Carstens says the impact from fuel costs on inflation will be temporary and that long-term expectations for prices are well anchored.

* Price increases were led by energy costs, which climbed 16.53 percent from a year earlier, while tradable goods rose 4.54 percent.
* Core prices climbed 0.37 percent, compared with the 0.27 percent median estimate
* Peso pared earlier gains to weaken 0.2 percent to 21.4291 per dollar on Tuesday.

Source: bloomberg.com