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Grape prices plummeted 19%. Grape prices plummeted 19%.

Inflation rate declines to 3.84% on drop in prices of agricultural products

It's the lowest the rate has been in 2 1/2 years

Inflation dropped to its lowest level in 2 1/2 years in the first half of July on the back of a moderate rise to consumer prices since the end of June.

The national statistics institute Inegi said today that the consumer price index (INPC) rose 0.27% in the first half of the month, bringing the annual inflation rate down to 3.84% from 3.95% at the end of June.

The rate, the lowest since December 2016, is within the range targeted by the Bank of México, which aims for inflation of 3% give or take a percentage point.

A reduction in prices in a range of agricultural products helped keep the INPC down in the first half of July.

The price of grapes fell 19%, chayotes were 13% cheaper, the cost of tomatoes declined almost 6% and the value of eggs was 1% lower.

Hand creams, toys and board games, women’s t-shirts and blouses and LP gas were also cheaper in the first half of this month compared to the second half of June, although prices for none of those products fell by more than 2%.

Regular gasoline, which influences the prices of many other products, increased 0.47% during the first two weeks of July.

Oaxaca and Tabasco, where consumer prices rose by 0.68% and 0.57% respectively, recorded the biggest INPC increases in the country.

Aguascalientes, Nuevo León and Colima also saw prices rise by around double the national average of 0.27%.

With the annual inflation rate moving towards the central bank’s target and a slowdown of the economy, expectations are growing that the Bank of México will begin lowering interest rates from their current 10-year high of 8.25%.

A majority of banks polled by Citibanamex this week said they expect a cut in the first week of September.

However, even with lower inflation and an interest rate reduction, there is still skepticism that economic growth will improve.

“Price stability should be the consequence of economic growth” not the other way around, Eufemia Basilio Morales of the National Autonomous University’s Economic Research Institute told the newspaper El Economista.

The government shouldn’t think that the stabilization of prices will lead to economic expansion, she said.

Héctor Magaña Rodríguez, head of the Economic and Business Research Center at Tec. de Monterrey, said that an interest rate cut “could still not be enough to cause a significant reduction in the cost of credit,” both for consumers and business.

The stabilization of prices is a good sign but at least in the short term it will be insufficient to influence general economic behavior, he said.

The economist explained there are other internal and external issues that must be addressed in order to remedy the slowing economy.

The International Monetary Fund (IMF) cut its 2019 growth forecast for the Mexican economy to 0.9% from 1.6% yesterday, citing weak investment and slowing private consumption as a result of “policy uncertainty, weakening confidence and rising borrowing costs.”

However, President López Obrador said he still expects 2% growth this year, declaring that he doesn’t have a lot of confidence in organizations such as the IMF.

Source: El Economista (sp) 

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