UPDATE 3-Mexico annual inflation eases below central bank ceiling

Wed Jan 9, 2013 11:36am EST

Related Topics

* December inflation 3.57 percent vs poll 3.71 percent

* First time below central bank ceiling since May

* Backs forecast for no interest rate change

By Alexandra Alper

MEXICO CITY, Jan 9 (Reuters) - Mexican consumer prices dipped below the central bank's 4 percent tolerance ceiling last month for the first time in seven months, further diminishing chances of an interest rate rise any time soon.

Mexican consumer prices rose 3.57 percent in the year through December, the national statistics agency said on Wednesday, slower than November's 4.18 percent and below expectations of 3.71 percent in a Reuters poll. December's figure is the lowest since April.

Consumer prices picked up 0.23 percent last month, down sharply from the 0.68 percent rate reported in November and below the 0.34 percent expected in a Reuters poll.

Although inflation had overshot the central bank's 4 percent ceiling for six months, a welcome retreat from a 2-1/2 year high reached in September had prompted the Banco de Mexico (Banxico) to row back on threats to raise interest rates "soon."

"Inflation is back at target, growth is not going to be particularly fast at least in the very near term, so interest rates are probably on hold for the time being," said David Rees, an economist at Capital Economics in London, who described the annual rate's quick descent as "good news."

The majority of Banco de Mexico members said at their December meeting they expected inflation to end the year below 4 percent, and investors and economists believe interest rates will be held at 4.5 percent until mid-2014.

Inflation had been pushed upward by fresh food prices as the cost of eggs and chicken rose following an outbreak of avian flu in western Mexico and bad weather damaged crops. Data showed a 0.56 percent rise in fruit and vegetable prices in December following two months of drops, and some economists are making gloomier forecasts for near-term inflation.

December's annual inflation rate is "a good number, but remember that the goal is 3 percent," said Pedro Tuesta, an economist at 4Cast in Washington D.C., referring to the central bank's inflation target.

Tuesta said he expects inflation to rise in the first half of the year due to the statistical effect of relatively low inflation rates in early 2012, as well as higher gasoline prices.

The Ministry of Finance under new President Enrique Pena Nieto has projected a $1.3 billion gasoline subsidy for 2013, which could signal a fuel price rise, analysts say.

The core price index, which strips out some volatile food and energy prices, rose 0.12 percent in December, compared with an expected 0.23 percent increase and a 0.05 percent rise in November.

Annual inflation in services, a key gauge of home-grown price pressures, decelerated to 1.15 percent and non-food core goods inflation, the most sensitive to currency fluctuations, picked up slightly to 4.13 percent. ((Alexandra.Alper@thomsonreuters.com; alexandra.alper.thomsonreuters.com@reuters.net)(+5255-5282-7142)

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