CENTRAL BANK REPORTS JANUARY-JUNE INFLATION AT 2.63 PERCENT.

The latest monthly inflation report from the Banco de Mexico (central bank) showed consumer prices were higher than expected during June, mainly because of higher costs for agricultural products and electricity.

The central bank reported an increase of 0.49% in the consumer price index (Indice Nacional de Precios al Consumidor, INPC) for June, slightly higher than the 0.40% to 0.44% increase forecast by several private analysts. This brought accumulated inflation for January-June to 2.63%, outpacing the 2.11% increase reported in the first six months of 2001.

The central bank's report on June is the last that will be based on an index developed in 1994. Starting with the second half of June and every half and full month thereafter, the Banco de Mexico will use a new index that adds 36 new items. The new index is intended to better reflect Mexico's consumer patterns (see SourceMex, 2002-05-15).

Analysts said the higher-than-expected June INPC was also influenced by a strong peso, which could have a bearing on monthly inflation rates the rest of the year. If this is the case, the government will have difficulty meeting its target for annual inflation of 4.5% for 2002. The Mexican currency has hovered close to 10 pesos per US$1.00. On July 10, the currency was quoted at 9.82 pesos per US$1.

Because of the potential for the peso to remain strong, some financial forecasters have raised their forecasts for annual inflation for this year above the government's target. The central bank's latest survey of private analysts showed their estimates averaged at 4.76% annual inflation. But others believe the rate will be even higher, with Grupo Financiero Banamex projecting annual inflation at 5.2% and the Centro de Investigacion y Docencia Economica (CIDE) at 6%.

Relatively high producer prices in June are also expected to influence consumer prices in the coming months. The central bank reported an increase of 0.77% in the producer price index (Indice Nacional de Precios al Productor, INPP).

As with the INPC, the strong peso had a major influence on the INPP. Other factors that affected producer prices were an increase in rental costs and high prices for liquefied gas," said the central bank. (Sources: Reuters, 07/09/02; La Cronica de Hoy, La Jornada, Milenio Diario, Novedades, Reforma, El Universal, 07/10/02)