Mexico's Rising Inflation Shows Signs of Relief in June

By Anthony Harrup Features Dow Jones Newswires

Mexican inflation reached an eight-and-a-half year high in June, but showed signs of slowing toward the end of the month, supporting the central bank's decision to signal a halt in its cycle of interest-rate increases.

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The consumer-price index rose 0.25% last month, pushing the annual inflation rate up to 6.31% from 6.16% at the end of May, the National Statistics Institute said Friday. Core CPI, which excludes energy and fresh fruit and vegetables, rose 0.30% to an annual rate of 4.83%.

After accelerating sharply at the start of the year on higher gasoline prices and the impact from a weaker Mexican peso, inflation appeared to be losing steam in June. The CPI rose just 0.03% in the last two weeks of the month, and the annual rate was practically unchanged from 6.3% midmonth.

Food prices, including processed foods and fresh produce, were among the main contributors to inflation in June. Energy costs slipped as a drop in gasoline prices offset increases in propane gas used in homes for cooking and heating water. Airfares and tourism packages rose ahead of the summer holiday season.

On June 22, the Bank of Mexico raised interest rates by a quarter percentage point to 7%, bringing short-term borrowing costs to their highest level since 2009, but adding that the increase was likely the last in the current cycle.

In explaining the decision, the central bank noted that inflation was rising at a slower pace than in previous months. The bank expects inflation to peak over the summer and start to ease toward the end of the year, and that it will return to the 3% target in the fourth quarter of 2018.

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"Today's data reinforce the central bank's message delivered in its last meeting that the tightening cycle is probably over. We expect the policy rate to be left unchanged at 7% over the remainder of this year, before a sharp drop in inflation next year brings rate cuts onto the agenda," Capital Economics said in a note.

Economists surveyed last month by the central bank estimated that inflation would end this year at 6%, and slow to 3.8% in 2018.

Write to Anthony Harrup at anthony.harrup@wsj.com

(END) Dow Jones Newswires

July 07, 2017 10:14 ET (14:14 GMT)