UPDATE 2-Mexico early-April inflation rises more than expected

Wed Apr 24, 2013 12:19pm EDT

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* Inflation picks up to 4.72 percent in year to mid-April
    * Highest since Sept, above bets for 4.58 percent rise
    * Interest rate decision on Friday


    By Alexandra Alper
    MEXICO CITY, April 24 (Reuters) - Mexican inflation rose to
a seven-month high in early April, rising further past the
central bank's tolerance ceiling, and cementing expectations the
central bank will hold interest rates steady on Friday, despite
signs of weaker growth. 
    Inflation rose to 4.72 percent in the year through the first
half of April, the national statistics agency said on Wednesday,
above expectations for a 4.58 percent pace in a Reuters poll and
above the 4.12 percent rate in the year through March.
    A spike in food prices drove much of the recent rise in
inflation. Mexican policymakers have grown increasingly
confident in recent years about the economy's ability to shake
off so-called supply-side shocks.
    The central bank is expected to hold its interest rate
steady Friday at 4.0 percent after a cut in March, according to
a recent Reuters poll. 
    Policymakers will likely argue that the spike in prices will
soon ease and they may highlight recent signs of economic
weakness, which may point to further cuts later this year.
    "There is a reasonable chance that they come out dovish,
signaling some sort of probability of a cut in the second half
of the year," Nomura economist Benito Berber said.
    Inflation, which rose for a third straight month in April,
has been on the upswing due in part to a low base of comparison
last year.
     
    The uptick in the annual rate contrasted with a 0.09 percent
drop in consumer prices in the first half of April,
following a 0.52 percent rise in the first half of March. The
decrease was less than the 0.23 percent drop analysts had
forecast.
    The start of summer electricity subsidies tends to pull
April prices down, though there is a new methodology for
calculating inflation this month that is designed to mitigate
the impact of lower power costs on inflation.
    Mexico's central bank cut its benchmark interest rate by 50
basis points in March to tame foreign capital inflows and tamp
down the appeal of the peso, which has gained almost 5 percent
against the U.S. dollar this year. 
    The central bank has said it expects inflation to be below
4.0 percent by the start of the second half of the year, and on
a downward path towards its 3.0 percent target by the end of
2013.    
    Core prices, which strip out volatile goods
like energy and food, rose 0.05 percent, lower than the 0.26
percent in the first half of March and compared with an expected
0.09 percent.
    The acceleration was driven by a rise in bus fares and
prices of gasoline and green tomatoes.  
    Annual inflation in services, a key gauge of home-grown
price pressures, accelerated slightly to 2.39 percent and
non-food core goods inflation, the most sensitive to currency
fluctuations, dipped slightly to 3.02 percent.
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