UPDATE 2-Mexico annual inflation rises to 6-month high in early Dec

Mon Dec 23, 2013 9:52am EST

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MEXICO CITY Dec 23 (Reuters) - Mexico's annual inflation picked up more than expected to a six-month high in early December on higher gasoline and tomato prices, but policymakers expect inflation to trend down next year.

Inflation in the 12 months though the first half of December jumped to 3.86 percent, the national statistics office said on Monday, above forecasts for a rise of 3.82 percent in a Reuters poll and its fastest pace since the first half of June.

The annual inflation rate was also above the 3.51 percent rate reached in the first half of November.

Price pressures are expected to be muted over the coming year, as the economy recovers from a contraction in the second quarter, despite a fiscal reform to boost Mexico's paltry tax take that is forecast to spur short-term price gains.

Policymakers have said inflation will hover around 3.5 percent next year, and borrowing costs are expected to remain on hold into 2015.

"Moderate growth and inflation support the Bank of Mexico's decision to keep its overnight interest rate target unchanged at 3.5 percent as the Federal Reserve tapers its quantitative easing program in 2014," Bill Adams, senior international economist for PNC Financial Services group said in an email.

Mexico's central bank kept its benchmark interest rate on hold earlier this month at a record low of 3.5 percent, after cutting in September and October to juice growth after the economy slowed sharply in the second quarter.

Growth rebounded in the third quarter but minutes released Friday showed central bankers still see risks to growth despite a raft of reforms being pushed through Congress by President Enrique Pena Nieto aimed at boosting the economy.

The energy reform, the cornerstone of his agenda, was approved by Congress earlier this month and prompted Standard & Poor's to lift Mexico's sovereign long-term foreign currency credit rating.

Market volatility could hit Latin America's no. 2 economy after the Fed last week began cutting its monthly bond buying program, which had supported demand for riskier, higher-yielding emerging market assets.

Mexico's consumer prices in the 12 months to November rose 3.62 percent. The central bank targets inflation of 3 percent with a 4 percent upper limit.

Consumer prices rose 0.40 percent in the first half of December as tomato and gasoline prices jumped. The rise was above expectations for a 0.36 percent increase and down from a 0.85 percent increase in early November.

Core consumer prices, which strip out some volatile food and energy prices, climbed 0.3 percent compared with forecasts for a rise of 0.24 percent and up from a 0.11 percent advance in the first half of November.

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