Mexico inflation at two-year high, may rise after fuel hike

MEXICO CITY (Reuters) - Mexico’s December annual inflation rose at the fastest pace in two years, data showed on Monday, boosting chances the central bank will raise interest rates again at a time when prices are expected to be further fanned by a hike in fuel costs.

Consumer prices MXCPIA=ECI rose 3.36 percent from December 2015, national statistics agency INEGI said on Monday, the highest rate since December 2014, and above the central bank's 3 percent target.

The figure was below the 3.40 percent analysts forecast in a Reuters poll but up from 3.31 percent in November.

Consumer prices should rise faster after a double-digit hike in gasoline prices went into effect this month, some analysts said. The increase has spurred protests, looting and blockades throughout the country.

“We expect a much more accentuated rise in January,” CitiBanamex said in a note, citing energy prices and a weak peso. The bank said inflation would surge beyond 4.6 percent on an annual basis.

Already, the fuel hike has prompted ride-hailing service Uber UBER.UL to raise user fees by 15 percent in Mexico City, while rival Cabify followed suit with a 6 percent fare increase announced on Monday.

Mexican authorities have also boosted electricity prices for certain sectors by 2.6 to 4.5 percent.

Last month, Mexico’s central bank raised interest rates for the fifth time in 2016, to 5.75 percent, taking borrowing costs to the highest level since April 2009.

In minutes of the central bank meeting, board members said they would remain attentive to potential pass-through from the exchange rate to inflation, after Donald Trump’s presidential election win sent the peso to new lows on fears he would disrupt U.S. economic ties with Mexico. [L1N1EO0NV]

Mexico’s central bank sold dollars last week to shore up the peso in its first such intervention since February 2016 but Capital Economics said in a client note that interest rates would have to rise further to contain consumer prices.

A poll released by Citibanamex last week showed analysts expected an increase of 50 basis points at Banco de Mexico’s February meeting.

Consumer prices MXINFL=ECI rose 0.46 percent on the month in December, according to non-seasonally adjusted figures, boosted by an increase in tourist services, airfares and eggs.

The core index, which strips out some volatile food and energy prices, rose 0.45 percent during the month MXCPIX=ECI.

Reporting by Alexandra Alper and Miguel Gutierrez; editing by Bill Trott and Andrew Hay