Thu, Jan 11, 2018 - Page 10 News List

Mexican inflation hits 16-year record high


Mexico last year registered its highest annual inflation rate in more than 16 years, official data released on Tuesday showed, piling pressure on policymakers to reign in prices.

The annual inflation rate was 6.77 percent at the end of last month, driven by rising energy and food prices, the Mexican National Institute of Statistics and Geography said.

That was the highest level since May 2001, and closed out a turbulent year for Latin America’s second-largest economy.

The news increased expectations that the Bank of Mexico will raise interest rates yet again at its next monetary policy meeting on Feb. 8.

It also stoked concern that high prices could become a hot-button issue in general elections to be held on July 1.

“Stubbornly high inflation could continue to fuel discontent and potentially affect the electoral campaigns,” consulting firm Eurasia Group said in a note.

The country started last year with a double headache that never completely receded.

On one hand, newly elected US President Donald Trump’s threats to scrap the North American Free Trade Agreement and make Mexico pay for a border wall caused the value of the peso to plummet.

On the other hand, a landmark energy reform that removed state subsidies for gasoline and diesel caused fuel prices to soar, triggering riots.

With the weak peso making imports more expensive and the 20 percent gasoline hike echoing throughout the economy, prices rose sharply — defying the central bank’s efforts to reign them in with five interest rate increases last year, up to 7.25 percent.

Inflation is well above the central bank’s target of 2 percent to 4 percent, and is the top challenge facing the bank’s new governor, Alejandro Diaz de Leon.

It could also prove troublesome for ruling party’s likely presidential candidate, Jose Antonio Meade, a former Mexican secretary of finance and public credit who presided over the worst of the price increases.

The Institutional Revolutionary Party and Meade have trailed leftist opposition leader Andres Manuel Lopez Obrador in opinion polls. The inflation issue has already dogged Meade on the campaign trail.

Last week, he rejected accusations that he was “the father of the gasolinazo,” referring to the word Mexicans use to refer to the gas price spike.

Analysts have said upward pressure on prices should start to fade early this year and predicted that inflation will recede as the gasoline increase drops out of the annual comparisons.

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