CORRECTED – WRAPUP 1-Data point to nagging worries in Brazil, Mexico

(Corrects drop to rise in 5th paragraph)

* Brazil Feb unemployment at 6.4 pct from 6.1 pct in Jan.

* Mexico Feb jobless rolls at 5.38 pct vs 5.43 pct Jan

* Mexico annual inflation slows in first half of March

By Luciana Lopez

SAO PAULO, March 24 (Reuters) – Latin America’s two biggest
economies still have a way to go before policymakers can feel
comfortable.

While some data point to a cooling in Brazil’s economy from
its surge last year, economists say the tight labor market and
high consumer prices could keep pressure on the central bank to
raise interest rates yet more this year.

In contrast, Mexico’s economy, a regional underperformer,
is picking up, but the data remain choppy and the extension of
a recovery for the domestic market uncertain.

“There’s an important path to be trod,” said Zeina Latif,
an economist at RBS in Sao Paulo. “The economic cycles of these
two countries, they’re at different places.”

Brazil’s February unemployment rate rose to 6.4 percent
from 6.1 percent in January, data showed on Thursday. But
because of seasonal effects and strong job creation, economists
said, the headline rise does not help the central bank much.

“The labor market is not improving,” said Alberto Ramos, an
economist with Goldman Sachs.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Regional unemployment rates: http://r.reuters.com/dex68r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

A more neutral jobless rate for Latin America’s biggest
economy would be closer to 7 or 7.5 percent, he said.

The tight job market has been a major driver for the
benchmark IPCA consumer price index, boosting salaries for
in-demand workers. The IPCA ended last year at 5.91 percent —
well above the central bank’s target of 4.5 percent, plus or
minus 2 percentage points.

Since then, 12-month inflation has sped even higher,
reaching 6.13 percent through mid-March, according to data
released on Wednesday.

The central bank has hiked its benchmark lending rate to
11.75 percent from an original 10.75 percent in January,
keeping Brazil’s interest rates among the world’s highest.

But annual inflation could still breach the upper end of
the target range this year, some economists say.

MEXICAN ECONOMY FLIPPED

Mexico finds itself in a different position: Unemployment
fell slightly in February, and annual inflation slowed, data
showed on Thursday.

The country’s recovery has been largely export-driven,
relying on the U.S. economy, and the domestic market has yet to
rebound in the same manner.

The 5.38 percent unemployment rate in February means there
is still significant slack in the economy, Ramos said.

Unemployment rates before September 2008 and the onset of
the global economic crisis were around a percentage point
lower.

Thus Mexico’s central bank might not need to raise interest
rates until the first quarter of next year, said Benito Berber,
an economist with Nomura Securities.

But markets see otherwise, he noted, with investors pricing
in 80 to 90 basis points of hikes this year.

“We’re seeing two different movies,” he said.

CORRECTED – WRAPUP 1-Data point to nagging worries in Brazil, Mexico