* Annual inflation lowest since October 2011
* Markets move to price in 25 basis point rate cut
* Economic activity rebounds more than expected
MEXICO CITY, Jan 24 Annual inflation in Mexico
eased to the lowest level in more than a year in early January,
nearing the central bank's target and bolstering market bets on
an interest rate cut this year.
Annual inflation slowed more than expected to 3.21 percent
in the first half of January, the national statistics agency
said on Thursday, the lowest mark since October 2011 and well
below the 3.57 percent rate at the end of December.
Falling inflation in Latin America's No. 2 economy contrasts
with a spike above 6 percent in Brazil and, along with risks to
growth, prompted the central bank to hint at its January meeting
it might cut rates from the current 4.5 percent.
Yields on interest rate swaps were bid lower after
the data as some investors increased bets on an interest rate
cut this year. Mexico's two-year interest rate swap
bid down 3 basis points, on track to close at its
lowest level since last July, when a spike in food costs drove
bets of a rate hike.
Still, analysts were skeptical of a move by the central
bank, which targets inflation of 3 percent, given rates have
been on hold since mid-2009 and policymakers have failed to
follow up on hints before.
"The market is now pricing in a cut, but what is going to be
the final criteria to push the central bank to action?" asked
Siobhan Morden, an analyst at Jefferies & Co.
"The market has had these manic shifts from hikes to cuts,
but the central bank has been consistent in inaction."
Analysts said growth in Mexico would need to slump to spur
lower borrowing rates. Economic growth is seen slowing from a
3.9 percent in 2012 to 3.5 percent this year, according to a
Reuters poll published this week.
"We maintain our view that Banxico will remain on hold for
an extended period of time," Banorte analysts said in a note.
FOOD PRICES FALLING
Inflation for the 12 months to mid-January of 3.21 percent
was lower than the 3.37 percent forecast by analysts in a
Reuters poll, curbed by a lower-than-expected rise in prices
early this month.
Consumer prices rose just 0.15 percent in the
first half of January, well below the 0.27 percent notched in
the first half of December and the 0.31 percent rise analysts
had forecast in a Reuters poll.
Core prices, which strip out volatile goods
like energy and food, rose 0.18 percent, in the first half of
January, below the 0.26 percent in the first half of December
and compared to an expected 0.23 percent.
Fresh food prices, which drove inflation to a 2-1/2 year
high in 2012, fell 2.21 percent in the half-month, dragged down
by a fall in the price of tomatoes and chilies.
Annual inflation in services, a key gauge of home-grown
price pressures, accelerated slightly to 1.30 percent and
non-food core goods inflation, the most sensitive to currency
fluctuations, eased to 3.87 percent.
Separate data showed annual economic activity
grew 4.14 percent in the 12 months through November, beating
expectations for 3.30 percent growth in a Reuters poll but below
the upwardly revised 4.49 percent annual growth in October.
On a monthly basis, economic activity expanded
by 1.07 percent in November, above forecasts for 0.55 percent
growth and better than the upwardly revised expansion of 0.36
percent the previous month.