UPDATE 1-Mexico cenbanker Sanchez - inflation battle not won yet

Fri Feb 8, 2013 2:55pm EST

MEXICO CITY Feb 8 (Reuters) - Mexico's central bank must remain vigilant on inflation despite a recent easing in the headline rate to its lowest in more than a year, central bank board member Manuel Sanchez said on Friday.

Sanchez, seen as the Banco de Mexico's toughest inflation fighter, said the recent decline largely reflected one-off factors and inflation expectations had not clearly improved.

"The short period of improvement in inflation, the extraordinary factors which explain it and the lack of a prolonged tendency towards the permanent objective mean that monetary policy must remain vigilant," he said in a presentation prepared for delivery in Monterrey.

Annual inflation slowed to 3.25 percent in January, the fourth monthly decline in a row, and traders and investors expect the Banco de Mexico to make good as early as April on hints it might lower rates from the current 4.5 percent.

But Sanchez's comments made it clear he will take some convincing. He noted that recent price falls in fresh food and telecommunications prices were the main drivers of the slowdown.

"Positive shocks, sooner or later, disappear or can even reverse course," he said. Mobile phone tariffs rose in January after two months of falls due to year-end discounting.

Sanchez also said analysts' inflation expectations had not clearly improved - something he said in an interview with Reuters earlier this month would be key to declaring victory in the battle against inflation.

Analysts surveyed by the central bank see inflation above its 3 percent target in both the short and long term.

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