Mexico's inflation speeds up in early September

By Aida Pelaez-Fernandez

MEXICO CITY (Reuters) -Mexico's headline inflation sped up in the first half of September, broadly in line with market expectations, heading closer to the upper limit of the central bank's target.

Banxico, as the central bank is known, is expected to further cut its benchmark interest rate 25 basis points later this week, but persistent inflation casts doubts on its path moving forward.

"Headline inflation close to expectations and core inflation slightly sticky — keeps Thursday's monetary policy decision in play, but calls for a measured tone in future guidance," said Felipe Barragan, research strategist at Pepperstone.

Consumer prices were up 3.74% in the 12 months through mid-September, statistics agency INEGI said on Wednesday, speeding from a prior figure of 3.49%. Analysts polled by Reuters had forecast an annual rate of 3.77%.

The closely watched core price index, which strips out some volatile food and energy prices, kept picking up with a 4.26% annual increase in early September, from the prior figure of 4.21%, and landed slightly above expectations of a 4.24% increase.

While the market expects inflation in Latin America's second-largest economy to reach 3.9% by the end of the year, Banxico targets an inflation rate of 3%, plus or minus a percentage point.

Despite inflation's speed-up, "Banxico anticipates a further deepening of conditions that allow for slack (weakness in economic activity), which going forward would reduce inflationary pressures," analysts at brokerage Monex said.

Month-on-month Mexican consumer prices rose 0.18% during the first half of September, also accelerating from a prior decrease of 0.02%, and compared with a 0.19% rise expected by economists in the poll.

The core price index kept picking up with a 0.22% monthly increase from the prior figure of 0.09%.

(Reporting by Aida Pelaez-Fernandez and Ricardo Figueroa; Editing by Nick Zieminski and Marguerita Choy)

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