UPDATE 1-Mexico annual inflation ticks up in early August

(Updates with prices, details)
    MEXICO CITY, Aug 24 (Reuters) - Mexico's annual inflation
rate quickened in early August to its highest level since
February, driven up by energy and tomato prices, but remained
below the central bank's target, giving policymakers room to
leave interest rates on hold.
    Inflation in the 12 months through mid-August picked up to
2.80 percent, the national statistics institute
said on Wednesday, in line with expectations in a Reuters poll.
    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.
    Mexico's economy shrank in the second quarter for the first
time in three years, dragged down by the deepest slump in
industrial output since 2009, and the government revised down
its 2016 outlook, but it was not seen sliding into recession
    Standard & Poor's on Tuesday lowered Mexico's sovereign
credit outlook to negative from stable, adding that a downgrade
could happen in the next two years if the government's debt or
interest burden deteriorated. 
    The annual reading of the core price index,
which strips out some volatile food and energy prices, hit 2.97
percent in early August. Policymakers are concerned that a
prolonged slump in the peso could hit inflation.
    On a monthly basis, consumer prices rose 0.31 percent in the
first half of August, below expectations for a 0.35
percent increase. Transport costs contributed most. 
    The core price index climbed to 0.13 percent in early
August, below forecasts for a 0.16 percent increase.

 (Reporting by Gabriel Stargardter and Simon Gardner; Editing by
Meredith Mazzilli)