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Mexican Inflation Up as 4Q Results Suffer From Peso Depreciation

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Inflation in Mexico is above the Central Bank's target of 4% as some of its biggest companies are struggling against the depreciating currency.

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Annual inflation in Mexico hit a high of 4.05% last month, above the Central Bank's ceiling for the first time in more than a year. The figures surpassed analysts' expectations of just under 4%, also the Bank's upper-limit.

Consumer prices were up 0.71% in January, compared with the previous month, while core prices were up 0.45% over the same period. Authorities in Mexico are not too worried, however, insisting that the jump is temporary, thanks to a food price spike which is not likely to fall out into wider pressures, report Reuters.

Policymakers are therefore unlikely to raise the country's interest rate. "Mexico will not hike, because core inflation is trending lower and inflation expectations are stable," Roberto Melzi, a Barclays strategist, told the agency.

Indeed, core inflation dropped in January. The peso is currently at 12.70 to the US dollar, which will help lower import costs and therefore cool inflation.

Events in Europe, however, may stifle hopes of cooling inflation in Mexico. Stocks struggled his morning after news that finance ministers in the region have failed to approve a second bailout for Greece, unhappy with the country's unwillingness to approve austerity measures such as a 22% cut in the minimum wage and thousands of civil servant layoffs.

Cement manufacturer Cemex (CX) and Carlos Slim's América Móvil (AMX) all fell this morning on the news from Greece.

América Móvil's fall is also attributed to last night's shocking announcement of a 36% fall in fourth-quarter profits, thanks in major part to foreign-exchange losses which have offset a 15% rise in revenue. The company's net debt rose 55% over the year, with the full acquisition of Telmex.

Telmex itself saw profits grow 21% in the fourth quarter, compared to 2010, thanks to higher revenue and a lower tax bill. América Móvil now owns around 93% of Telmex, up from 60% in October.

Slim's flagship company runs around 80% of Mexico's fixed lines and 70% of its cell phones. It has come under much criticism in recent weeks, with the Organization for Economic Cooperation and Development (OECD) accusing it of costing Mexico's economy nearly $26 billion annually -- 2% of Mexico's GDP -- at opportunity cost, thanks to allegedly overcharging customers $13.4 billion per year between 2005 and 2009.

This follows a little good news for Slim's company, as Mexican regulators recently stepped in to prevent a 50% purchase of telecommunications operator lusacell by major braodacaster Televisa (TV), owned by Slim rival Emilio Azcárraga Jean. The companies are looking to appeal the decision, made last week.

More Fourth Quarter Results
Alfa (ALFAA.MX) saw fourth quarter profit down a whopping 54%, compared to the same period in 2010. Profits during the three-month period last year were just $83 million compared to $182 million in 2010. As with many firms, the drop in profit is again partly thanks to foreign exchange losses.

A sales rise of 22% in the fourth quarter compared to the year-ago period failed to offset problems caused by the depreciation of the peso against the US dollar. The conglomerate pointed out that profit for 2011 as a whole was up 9% on the previous year, despite the fall in the peso.

The Monterrey-based company is looking forward, however. In a 2012 guidance statement, it says that it hopes to see sales up 5% this year to $15.5 billion. This will be bolstered by $600 million worth of investments across five of its units.

Copper giant Grupo Mexico (GMBXF.PK) saw fourth quarter profits flat on the same period a year ago, up just 0.2%. While production and sales were up, lower metals prices are to blame. Low commodity prices were the "result of low expectations for demand due mainly to the European debt crisis and also lower global growth expectations," the company said in a statement. The company is hoping China's growing demand will help it lift profits this coming year.

Wal-Mart de Mexico (WMT) saw January sales up 13.1% from the same period last year, reaching $2.74 billion. Sales in Mexico were 4.7% higher than January 2011, counting only stores that have been open for the entire period. Central America stores saw a sales rise of 17.9%.

Auto Row With Brazil
A Mexican mission to Brazil this week in order to persuade the Latin American giant to pull plans to impose 35% taxes on auto imports appears to be struggling. Brazilian Foreign Relations Minister Antonio Patriota had no news for reporters. "There is no result," he said. "Nor is that the purpose of the exercise we're in." A second round of talks is expected later this month.

Twitter: @jammastergirish
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No positions in stocks mentioned.

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