Mexico Inflation Hits a Historic Low

Yet another stunning victory for inflation targeting, or is something else going on here.

Mexico this week produced yet another sign of consolidating macroeconomic stability after it announced 2005 inflation was the lowest on record.Prices increased a slightly higher-than-expected 0.61 per cent in December but ended the year at only 3.3 per cent; lower than at any time since the government began keeping records 36 years ago.

The figure, which analysts say is largely the result of a highly restrictive monetary policy exercised during most of last year by Mexico’s central bank, places inflation squarely within the bank’s 3 per cent annual target with a one-point margin either side.