UPDATE 2-Mexico faces bigger inflation risk -central bank member

viernes 26 de septiembre de 2014 18:38 GYT
 

(Adds context on minimum wage hike)

Sept 26 (Reuters) - Mexico's inflation outlook has worsened after a spike in fresh food prices and a political debate on raising the country's minimum wage, Mexican central bank Deputy Governor Manuel Sanchez said on Friday.

Sanchez said in a speech in New York that inflation would likely remain above 4 percent during this year, and that a wage increase could spur broader price pressures, according to an emailed copy of his speech.

"Significant minimum wage hikes may contaminate the process of price formation," Sanchez said. "These adjustments could trigger a chain reaction on inflation expectations" and make it harder to reach the central bank's 3 percent target.

Mexico City's leftist mayor and the opposition conservative National Action Party have both proposed minimum wage increases ahead of mid-term elections next year.

The minimum wage is currently set by a commission of government, business and labor representatives.

Data this week showed Mexican annual inflation in early September remained above the central bank's ceiling at 4.21 percent. Policymakers expect inflation to cool to about 3 percent in the first half of 2015.

The central bank cut its benchmark rate to 3 percent in June and has held steady since then, arguing that a sluggish economy would contain price pressures through next year.

Mexico's Sanchez, who is seen as the board member most worried about inflation, also said there were risks of further agricultural price shocks. There also was the possibility that a bout of volatility in global financial markets could weaken the peso enough to drive up import prices and inflation.

The Mexican peso slumped to an eight-month low on Friday after strong U.S. second quarter growth data backed bets that the U.S. Federal Reserve could raise interest rates next year.

The peso has shed nearly 5 percent from a June high amid expectations that higher U.S. interest rates would push investors to dump emerging market debt - seen as riskier - in favor of dollar-denominated assets. (Reporting by Michael O'Boyle. Editing by Andre Grenon)