August 8, 2013 / 1:46 PM / in 4 years

UPDATE 1-Mexico annual inflation slows sharply in July

MEXICO CITY, Aug 8 (Reuters) - Mexico’s annual inflation slowed sharply in July, dropping back below the central bank’s target ceiling after four months above 4 percent and giving policymakers room to lower interest rates if growth falters.

Inflation eased to 3.47 percent in the year through July, from 4.09 percent in June, the national statistics agency said on Thursday. The pace was just below the outlook in a Reuters poll and the slowest since January.

A big part of the decrease was due to a favorable comparison with the previous July, when egg and chicken prices surged.

The central bank on Wednesday cut its growth outlook for 2013 after a slowdown in the first half of the year and stuck to forecasts for inflation to hover around 3.5 percent in the second half of the year.

A recent spike in inflation on higher fresh food costs had crimped policymakers room to lower benchmark interest rates after they cut to a record low of 4 percent in March.

The prospect of a reduction in monetary stimulus in United States, Mexico’s top trading partner, has lessened the case for even lower interest rates in Latin America’s number two economy.

However, some analysts think the central bank could cut again if growth slows further and the peso gains so much ground that it hurts exporters and weighs on growth.

“I don’t think it’s where they are at right now but it’s something they would consider if they get one or the other, or a combination of the two,” said Rafael de la Fuente, an economist at UBS in New York.

Consumer prices fell a slight 0.03 percent in July, according to non-seasonally adjusted figures, as tomato and egg prices fell.

The core index, which strips out some volatile food and energy prices, rose 0.03 percent during the month.

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