UPDATE 1-Inflation risks build in Latam, but not Mexico

* IMF sees overheating risks in parts of Latam

* Inflation outlook for Mexico bucks general trend in 2011
(Adds details, quotes, background)

MEXICO CITY, April 11 (Reuters) – Inflation risks are
building everywhere in Latin America except Mexico, where price
gains are low and economic expansion should outpace Brazil this
year, the International Monetary Fund said on Monday.

Consumer price inflation across Latin American and the
Caribbean would likely accelerate to 6.7 percent this year from
6.0 percent in 2010, the Washington-based IMF said in its
latest World Economic Outlook, before slowing again in 2012.

“The generally buoyant conditions are associated with
rising inflation in South and Central America. On the other
hand, Mexico is not facing overheating pressure at this time,”
the fund said.

Price pressures in the fast-growing region should be partly
anchored by Mexico, where annual inflation should slow from
around 4.2 percent last year to 3.6 percent in 2011 and 3.1
percent in 2012, the IMF added.

Fueled by higher commodity prices, inflation pressure is
expected to build across many of the major South American
economies this year. Paraguay, Bolivia and Chile would all see
a significant jump in the annual rate, the IMF predicted.

Central banks in South America have been tightening
interest rates in recent months to battle the rising price
pressures, with Brazil’s main lending rate at 11.75 percent.

As a result, many economies are expected to slow.

Growth in the Latin America-Caribbean region would likely
ease from just over 6 percent in 2010 to around 4.75 percent
this year and 4.25 percent the following year, the IMF said.

“The outlook for commodity exporters is generally positive.
There are signs, however, of potential overheating, and capital
inflows have caused policy tension,” the fund said.

“For example, real credit growth in Brazil and Colombia is
increasing by 10 to 20 percent a year according to the most
recent data. Furthermore, per capita credit in Brazil roughly
doubled over the past five years.”

MEXICAN OPTIMISM

The inflation outlook in Mexico, however, is benign, the
fund said, noting that Mexican output is appreciably below
pre-crisis levels, just as in Russia and Turkey.

“Projections suggest that much of the output lost relative
to 1997-2006 trends has been lost permanently and therefore
point to much smaller negative or closing output gaps,” it
said, though it revised up Mexico’s growth forecast for 2011.

Gross domestic product in Latin America’s second-biggest
economy should expand by 4.6 percent, the fund said.

In Brazil, the biggest economy, GDP would expand by about
4.5 percent, down from around 7.5 percent last year, the IMF
said.

The fund’s new forecast for Mexico was 0.4 percentage point
better than the IMF had expected in a Jan. 25 estimate, and 0.7
percentage point higher than in the last WEO in October.

Nevertheless, the fund noted Mexico’s fortunes would remain
closely tied to developments in the United States, the market
for about 80 percent of its exports.

The IMF’s latest prediction follows a Mexican Finance
Ministry announcement that 2011 growth could even outpace a
10-year high of 5.5 percent scaled last year. Policymakers have
been increasingly upbeat in recent weeks.

The fund forecast the unemployment rate in Mexico would
decrease from an average of 5.4 percent last year to 4.5
percent this year and 3.9 percent in 2012. It saw economic
growth in the country slowing to 4.0 percent next year.

By contrast, it saw Brazil’s jobless rate holding steady at
6.7 percent over the next two years.
(Reporting by Dave Graham; Editing by Dan Grebler)

UPDATE 1-Inflation risks build in Latam, but not Mexico