(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 soon. 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)
Our Standards: The Thomson Reuters Trust Principles.