Mexico inflation ticks up, boosting rate hike expectations

Mexican inflation accelerated for a second straight month in November, data showed on Thursday, raising the likelihood the central bank will raise interest rates this month to contain price pressures. Annual inflation ticked up to 6.63 percent from 6.37 percent in October, data from the national statistics agency showed. The median forecast of a Reuters poll of analysts was 6.60 percent.
The latest data took inflation to its steepest rate since August, when it reached the highest level in 16 years. Mexico's central bank in June raised the benchmark interest rate to 7.00 percent, the highest level since early 2009, and analysts said the latest inflation data made a fresh rate hike more likely. The central bank publishes its latest rate decision on December 14. It will be the first presided over by new governor Alejandro Diaz de Leon following the departure of Agustin Carstens to the Bank for International Settlements at the end of November.
"We now expect policymakers to raise interest rates by 25 basis points (to 7.25 percent) at Alejandro Diaz de Leon's first meeting as Central Bank Governor next week," Capital Economics said in a note to clients following the data. In his first few days on the job, Diaz de Leon said Mexico's inflation outlook had deteriorated in recent months, and warned inflation's predicted downward path in 2018 could be affected by more possible shocks in the future.
Analysts are concerned a further slump in Mexico's peso could boost consumer prices due to higher import costs. The peso has been hurt by concerns that US President Donald Trump could abandon the North American Free Trade Agreement (NAFTA), which underpins Mexico's export economy.