Mexico annual inflation slows in August

MEXICO CITY: Mexico's annual inflation rate slowed in August, giving room for the central bank to lower interest rates in an economy seen as losing momentum.

Consumer prices rose 3.42 percent in the 12-month period year through August, the national statistics agency said on Thursday, lower than the 3.50 percent median forecast in a Reuters poll and down from 3.55 percent in July.

Mexico's central bank has a 3 percent inflation target but says it can live with variations up to one percentage point higher. In a speech on Wednesday, central bank chief Agustin Carstens said policymakers would be willing to lower borrowing rates if such a measure was called for due to a weak global economy.

The consumer price index rose 0.16 percent in August after climbing 0.48 percent in July. The core index, which strips out some volatile food and energy prices, rose 0.12 percent during the month after climbing 0.22 percent in July.

On Aug. 26, in its last meeting the central bank board held interest rates steady but stated Mexico's pace of economic growth has lost some momentum but the economy was still growing amid strong exports.

The same day, central bank governor Agustin Carstens said the bank is prepared to cut its benchmark interest rate if global market turmoil and weak growth at home demanded a policy response.

Mexico's economy is closely tied to that of the United States and signs of economic weakness north of the border have prompted analysts to curb their outlook for growth.

Early this month, their median forecast saw 3.81 percent economic growth this year -- substantially lower than the 4.24 percent seen a month earlier.

Brazil's surprise move late last month to cut borrowing rates by 50-basis-points was among the factors that have prompted investors to price in a 25 basis point cut for Mexico in December, according to their bets in the Mexican interest rate futures market.

The central bank has kept its benchmark rate at 4.5 percent since July 2009.

Copyright Reuters, 2011