Mexican Inflation Off to a Slow Start in 2018

By FeaturesDow Jones Newswires

Inflation in Mexico slowed sharply in the first half of January as the impact from the previous year's jump in gasoline prices faded and fruit and vegetable prices fell.

The consumer-price index rose 0.24% in the first two weeks of the year, pushing the annual rate down to 5.51% from 6.77% at the end of December, the National Statistics Institute said Wednesday.

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The main reason for the slowdown was a smaller increase in energy costs than that seen in the year-earlier period, when the government raised gasoline prices as it prepared to remove price controls on fuels.

The price of regular gasoline rose 1.47% in the first two weeks of January, compared with a 16.8% rise in the same period of 2017. Fresh fruit and vegetable prices fell 3.31%, while airfares and tourism packages were cheaper after the holiday season. A drop in prices of winter clothing also helped.

Core CPI, which excludes energy and fresh fruit and vegetables, rose 0.17% in the first half of January, with the annual rate falling to 4.63% from 4.87% at the end of last year.

Despite the slowdown in inflation, which was widely anticipated, the Bank of Mexico is still expected to raise interest rates again at its Feb. 8 meeting to keep last year's cost-of-living increases from contaminating inflation expectations and compromising its efforts to bring inflation back to the 3% target.

Twenty-one of the 26 banks polled this week by Citibanamex called for a quarter percentage-point increase in the overnight interest rate target next month to 7.5%. Inflation expectations for all of 2018 were unchanged at 4.1%, just above the central bank's 2%-4% target range.

The rise in inflation last year to its highest level since mid-2001 curbed some of the benefits of record formal private-sector job creation and the decline in unemployment to its lowest rate in more than a decade, since most wages rose less than consumer prices.

"Inflation is the most predatory tax there is. It punishes everyone the same," said Vicente Yáñez, president of the retail association Antad whose members in 2017 saw sales grow the least in three years, including a 1.5% decline in same-store sales after inflation is taken into account. "We hope the Bank of Mexico and the finance ministry will take the necessary measures so that inflation doesn't become part of the problem," he added.

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

(END) Dow Jones Newswires

January 24, 2018 10:22 ET (15:22 GMT)

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