RPT-UPDATE 2-Mexico inflation uptick transient, won't impact rates -Carstens

Fri Jan 10, 2014 2:32pm EST

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By Jean Arce

MEXICO CITY Jan 10 (Reuters) - An uptick in December inflation in Mexico is due to transitory factors and will not prompt the bank to shift its monetary policy, Central Bank Governor Agustin Carstens said on Friday.

Inflation quickened to a 6-month high in December after the bank cut its benchmark interest rate three times to an all-time low of 3.5 percent last year to counter a slowdown.

Speaking at an event in Mexico City, Carstens said much of December's inflation rise was due to increases in some regulated prices resulting from the government's policy to slowly reduce its gasoline subsidy and a decision to raise metro fares in the capital.

Still, Carstens said he expects inflation to quicken to above 4 percent - the central bank's tolerance ceiling - in the coming months as a fiscal reform approved last year takes effect, leading to new taxes on junk food, sodas and fuel.

"We'd like to see a convergence towards 3 percent, but this definitely won't be achieved this year due to the impact of fiscal measures," Carstens said.

In a presentation posted to the central bank website, Carstens reiterated his view that inflation will reach 3.5 percent by year-end before trending down to the bank's target of 3 percent in 2015.

Carstens continued to forecast a rebound in economic activity, but added that the output gap would remain in negative territory, meaning no growth-related inflationary pressures.

Mexico likely grew just 1.3 percent last year, according to the finance ministry, but the central bank has forecast growth of 3 to 4 percent in 2014. (Reporting by Jean Arce; Editing by Meredith Mazzilli)

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