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Mexican Consumer Prices Lower in Early April

Juan Montes - Dow Jones
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April 23, 2012

Mexico's consumer prices are expected to have moved lower in the first half of April, pushed down by seasonal subsidies on residential electricity rates that went into effect in some cities, and by lower produce prices and tourism rates.

The consumer price index probably fell 0.19% in the first two weeks of April, according to the median estimate in a Dow Jones Newswires survey of 16 economists. That would bring the annual inflation rate down to 3.63% from 3.73% at the end of March, within Bank of Mexico's 3%-4% forecast.

Core CPI, which excludes energy and fresh fruit and vegetables, is expected to have risen 0.07% in the period, pushing the annual rate up to 3.39% from 3.31%.

The National Statistics Institute, or Inegi, is scheduled to report inflation for the first half of April on Tuesday at 9 a.m. EDT.

Electricity costs typically fall in April when the government implements seasonal subsidies to help people in warmer regions of the country to pay their bills. The effect on inflation continues in May, when additional cities in the north of the country are included in the subsidies.

Lower fruit and vegetable prices, and lower tourism services after the Easter holidays, are also expected to limit inflation in the first half of April.

Mexico's inflation started to ease in early February, giving the Bank of Mexico more room to cut interest rates in the future. The minutes of the Bank of Mexico's March policy meeting showed most board members agreed inflation was moving toward the bank's 3% target, and several considered that interest rate cuts could be advisable if the inflation outlook continues to improve.

"But we think it's too early to call for a rate cut. The peso's recent depreciation is a clear signal that turbulence in Europe is still there," said Rodolfo Navarrete, an economist at local brokerage Vector. "The central bank won't put its credibility at risk."

The Bank of Mexico will announce its next policy decision on Friday. The consensus still expects the central bank to stay on hold at 4.5% for a long period, but some economists have changed their call to a rate cut in the next months after the latest minutes.

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