UPDATE 1-Mexico inflation rises faster than expected in early Dec

(Adds annual inflation rate)
    MEXICO CITY, Dec 22 (Reuters) - Mexico's annual inflation
accelerated faster than expected in early December and reached
its highest level in two years, stoked higher partly by a weak
peso that has pushed policymakers to raise borrowing costs.   
    Inflation in the 12 months through mid-December was 3.48
percent, the national statistics institute said on
Thursday, the highest half-month reading since December 2014.
    A Reuters poll had projected the rate would accelerate to
3.42 percent from 3.29 percent in early November. Mexico's
central bank targets inflation of 3 percent.
    Last week, Mexico's central bank raised its benchmark
interest rate by 50 basis points to 5.75 percent in a bid to
cool inflation after the peso fell to record lows following
Donald Trump's Nov. 8 U.S. election victory. 
    It was the fifth rate hike this year by policymakers who are
concerned the weak peso could push consumer prices higher. The
central bank expects the inflation rate to rise toward 4 percent
next year before easing back toward its target in 2018.
    The annual reading of the core price index,
which strips out some volatile food and energy prices, rose to
3.46 percent in early December, above a forecast 3.30 percent
and 3.33 percent in early November.
    The core index reflects higher goods costs as the weak peso
drives up import prices.
    On a monthly basis, Mexican consumer prices rose 0.42
percent during the first half of December, while the core price
index climbed 0.47 percent in early December.
    The data showed higher airplane ticket and tourism package
costs drove much of the increase in prices.
    Separate data showed the pace of economic activity slowed in
October from the previous month as output from the services
sector slowed and industrial production remained sluggish.

 (Reporting by Michael O'Boyle; Editing by Meredith Mazzilli)