Bank of Mexico expects annual CPI to end year up 3%-4%
Central bank keeps 2012 GDP growth estimate at 3.25%-4.25%
Governor Agustin Carstens says second-quarter GDP likely grew 4.2%
: The Bank of Mexico maintained Wednesday its inflation forecast for this year despite a recent surge in food prices, which it expects to have a temporary effect on the consumer price index.
In its second-quarter inflation report, Mexico's central bank reiterated consumer prices will rise between 3% and 4% this year and next. Bank of Mexico Gov. Agustin Carstens said rising food costs are a supply shock that shouldn't have a generalized impact on prices.
"We see a high probability that this trend will revert, so there's no need to react via monetary policy," Mr. Carstens said at an event to present the report.
Mexico's annual inflation accelerated in July to a more than two-year high due to volatile prices of fruits and vegetables, as well as a rise in egg prices as a result of an outbreak of bird flu. The CPI was up 4.42% from a year earlier, its highest level since March 2010 and up from 4.34% at the end of June.
The central bank said it doesn't rule out inflation being above the 4% top of its target range in the third quarter of this year.
The central bank has kept its overnight interest rate target at 4.5% since July 2009. Higher inflation is making it increasingly difficult for the central bank to cut rates, a possibility it had hinted at earlier this year. But in a context where major developed and emerging economies are implementing very accommodative monetary policies, a rate increase also seems unlikely.
Mr. Carstens said the bank expects the Mexican peso to keep appreciating in the near future, which should contribute to easing inflation pressures as imports would be cheaper. The peso has gained 9.2% since the end of May, and was recently quoted in Mexico City trading at MXN13.1380 to the U.S. dollar.
"Once the dust settles, we could see further appreciation reflecting the good shape of Mexican economy," said Mr. Carstens in reference to the financial turbulence that has been weighing on the peso.
The central bank also maintained its economic growth outlook for 2012, while reiterating that risks to growth have increased given that the global growth outlook is deteriorating. The bank expects gross domestic product to expand between 3.25% and 4.25% this year, and between 3% and 4% in 2013.
Mexico's GDP, a broad measure of output in goods and services, is expected to have expanded 4.2% year-on-year in the second quarter of 2012--supported by flourishing domestic demand and election-related spending--according to the median estimate in a Dow Jones Newswires survey of 17 economists.
Bank of Mexico Governor Agustin Carstens said in presenting the report that the central bank believes that GDP likely expanded about 4.2% in the second quarter. "But despite the good performance, the economy is not overheating as there're no demand-side pressure on prices," he added.
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