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Inflation in Mexico Is Heating Up

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Inflation in Mexico is heating up, according to the Financial Times of London. FT says inflation “rose again in April to an annualized rate of 5.82 percent, beating market forecasts and rising at the fastest pace since May 2009.”

The London-based financial publication reports that the annualized rate is about twice the 3 percent prediction of Mexico’s central bank. What’s causing the jump in prices? The inflation finger is pointed at the recent surge in fuel prices in Mexico and the peso’s continuing weakness.

Inflation is spreading from energy costs to more goods and services that help drive the Mexican economy, which is the 15th largest in the world and the second largest in Latin America, behind Brazil. Energy prices, which directly affect consumers, have slowed somewhat since the 20 percent increase as 2017 began, FT says, but remain high.

Inflation seems to be taking a bite out of consumer spending as purchase of goods and services produced in Mexico fell 0.2 percent. Meanwhile, consumers in Mexico snapped up nearly 5 percent more imported goods, February over January this year.

April’s inflation number was the tenth monthly rise in a row and, FT reports, “means the central bank can be expected to stay more hawkish than U.S. monetary policy in the rest of 2017, even if the peso’s recent recovery holds.”

Although FT and many economists believe that inflation will get worse before it gets better in Mexico, inflation is projected to ease during the second half of 2017. On the plus side, the overall outlook for Mexico’s economy has improved since the start of the year as fears about big changes in NAFTA begin to dissipate. Inflation will begin to moderate in the second half of the year as higher interest rates and tighter fiscal policy start to bite, FT and economists predict.

Good news for expats, particularly those of you on fixed incomes.