UPDATE 3-Mexico consumer prices climb 0.28 pct in August

* Mexico inflation 0.28 pct in Aug vs 0.32 pct f’cast

* Mexico 12-month inflation at 3.68 pct

* Core inflation up 0.1 pct in Aug
(Adds background, details)

By Patrick Rucker

MEXICO CITY, Sept 9 (BestGrowthStock) – Mexican inflation rose less
than expected in August as consumer prices were held down by a
weak economic recovery that should give the central bank more
room to keep interest rates on hold.

Consumer price inflation rose to 0.28 percent in August
from 0.22 percent in July, while analysts had expected a
reading of 0.32 percent for the month.

Twelve-month inflation, however, broke a four-month streak
of declines rising to 3.68 percent from the 3.64 percent seen
in July, the central bank said on Thursday. The closely watched
core index, which strips out some volatile food and energy
prices, was up 0.1 percent during the month.

Fuel costs should continue to climb through the year, along
with volatile food prices, driving up overall inflation. But
the core inflation figure that most concerns central bankers
should stay muted, said Arturo Vieyra, an economist with
Banamex.

“We also see internal demand increasing for the rest of the
year as the employment picture improves,” he said.

Consumer confidence climbed slightly in August but
unemployment also saw an uptick in July. Despite that muddled
picture, many economists expect Mexicans to increase spending
through the closing months of the year.

RATES SEEN ON HOLD

The central bank slashed interest rates in 2009 in an
effort to stem the global financial crisis, but the economy
still contracted 6.5 percent that year.

Analysts expect the central bank to keep its key lending
rate steady through at least the middle of 2011 as growth is
expected to slow next year.

In announcing its budget proposal on Wednesday, the Finance
Ministry said it expects a 3.8 percent growth rate for 2011
with inflation at 3 percent for the year.

Mexico has been an economic laggard compared to its
regional peers as the global economy struggles to rebound from
a deep downturn.

Brazil ended a monetary tightening cycle early this month
that aims to cool an economy which is expected to grow by 7.34
percent this year, according to a recent central bank survey,
while inflation is expected to increase to 5 percent in the
next twelve months.

Peru, another major commodity exporter in the region,
should see its economy grow by as much as 8 percent this year
while keeping inflation below 3 percent, the central bank has
said.

Mexico’s economy is closely tied to the United States which
absorbs 80 percent of exports and so recent signs of weakness
north of the border are casting a shadow over Latin America’s
second-largest economy.
(Reporting by Patrick Rucker; Editing by Andrew Hay)

UPDATE 3-Mexico consumer prices climb 0.28 pct in August