Mexico holds rate, rise in January inflation was temporary

    Mexico's central bank held its policy rate steady at 3.50 percent, as expected, and said the recent inflation data show the rise at the start of the year was transient and hasn't affected prices in general.
    The Bank of Mexico, which cut its target for overnight rates by 100 basis points in 2013, said the rise in prices in January was anticipated and concentrated on a small number of goods with no second order effects from the changes in prices that took place in late 2013 and early 2014.
    Both headline and core inflation fell in February and short-term inflation expectations have also declined slightly, the bank said, adding that expectations for 2015 and beyond have remained stable.
    Mexico's headline inflation rate fell to 4.23 percent in February from a jump to 4.48 percent in January while core inflation eased to 2.98 percent from January's 3.2 percent.
    In January the central bank had said it was keeping a close eye for signs of inflationary pressures in light of the rise in inflation due to higher public transport prices and taxes, with inflation expected to remain above 4.0 percent in the first few months of the year before declining in the second quarter toward the bank's target range of 2.0 percent to 4.0 percent.
    Mexico's economy slowed in late 2013 and early this year and the bank said a clear recovery had not yet been seen in the components of demand.
    "In particular, even when public spending is more buoyant, exports and private consumption and investment have yet to show clear signs of acceleration," the central bank said, adding that overall slack conditions prevail and the risks to economic activity had not improved markedly.
    Mexico's Gross Domestic Product expanded by only 0.18 percent in the fourth quarter from the third quarter for annual growth of 0.7 percent, down from a rate of 1.4 percent in the third quarter. For the full year of 2013 growth fell to 1.1 percent from 3.9 percent in 2012.
    The global economy, however, has continued to recover modestly in early 2014 and the outlook has improved despite major downside risks.

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