(Recasts with annual rate, adds background) MEXICO CITY, Sept 22 (Reuters) - Mexico's annual inflation rate unexpectedly rose in early September and the core reading hit its highest since late 2014, which may back bets that policymakers could raise interest rates after a deep slump in the peso. Inflation in the 12 months through mid-September rose to 2.88 percent, the national statistics institute said on Thursday, its highest reading since February. A Reuters poll projected the rate would decline to 2.71 percent from 2.80 percent in early August. Mexico's central bank targets inflation of 3 percent. Despite relatively tame inflation and weak growth, a steep slide in the peso pushed policymakers to raise interest rates by more than expected in late June. Bets in the interest rate swaps market on a rate hike at Mexico's central bank meeting next week have increased since the peso began to tumble again this month, sinking to a record low near 20 per dollar this week. The annual reading of the core price index, which strips out some volatile food and energy prices, rose to 3.05 percent in early September, its highest since December 2014. The core index reflects higher goods costs as the weak peso drives up import prices. On a monthly basis, Mexican consumer prices rose 0.54 percent during the first half of September on higher tomato and egg prices. The closely watched core price index climbed 0.36 percent in early September. (Reporting by Michael O'Boyle; Editing by Meredith Mazzilli)
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