Mexico's annual inflation ticked up to 4.10 percent in early August, above the central bank's target range but still within expectations. Consumer prices rose 0.20 percent in the first two weeks of August, the central bank said on Thursday.
The bank said prices for tomatoes and other fruits and vegetables fell in the first half of August, while electricity and education costs rose. Children return to schools in August and parents buy materials for the new academic year.
Closely watched core inflation, which strips out volatile prices for energy and certain food products, was 0.11 percent during the first half of the month. Economists in a Reuters poll on average had estimated 0.21 percent inflation for the first two weeks of August.
Although Mexico's annual inflation is above the 4 percent limit the central bank considers acceptable, all 20 experts consulted in a Reuters poll do not expect the bank to raise its key interest rate at its monthly policy review on Friday. Annual inflation in mid-July was 4.08 percent.
The central bank has said it expects annual headline inflation between 3.75 percent and 4.25 percent in the third quarter. But 12-month inflation should come back down to between 3.25 percent and 3.75 percent in the fourth quarter and hit its 3 percent goal by the end of 2008, the bank said last month. Economists surveyed by Reuters last month said they expect annual inflation at 3.55 percent by the end of 2008.
Some analysts say that if the US Federal Reserve cuts its benchmark fed funds rate in response to a growing credit crunch in the United States, Mexico's central bank might be tempted to reduce its own key rate. But possible volatility in food prices and the effects of higher taxes from an expected fiscal reform package mean significant inflation risks remain in Mexico, and the bank does not have room for a rate cut and could even have to hike, Credit Suisse economist Alonso Cervera said.
"However, we do not think that such a move will take place tomorrow, as the central bank will likely prefer to assess the degree of stability in the financial markets over the next few weeks," Cervera said in a report.
Mexico's peso firmed a slight 0.06 percent on Thursday to 11.0670 per dollar, partly on optimism the government is close to a deal with opposition legislators on a reform package to boost the country's paltry tax take. While economists have long encouraged a tax overhaul to improve government revenues, they warn that its implementation could cause an inflation spike as products become more expensive because of higher taxes.