UPDATE 3-Mexico consumer prices fall in early April

* Mexico consumer prices unexpectedly fall in early April

* Reading takes pressure off central bank to raise rates
(Adds quote from central bank governor)

By Jason Lange and Michael O’Boyle

MEXICO CITY, April 22 (BestGrowthStock) – Mexican consumer prices
unexpectedly fell in the first half of April, taking pressure
off the central bank to raise interest rates, data showed on
Thursday.

Mexican prices fell 0.31 percent during the first two weeks
of the month (MXCPIF=ECI: ), pushing the 12-month inflation rate
lower for the first time this year, the central bank said.

Prices fell for electricity, packaged tours and airline
tickets.

Mexico is recovering from a deep recession but the central
bank is expected to raise interest rates late this year to
contain inflation, which accelerated early this year because of
higher taxes and fuel prices set by the government.

The annual inflation rate in early April fell to 4.41
percent after a 5.06 reading during March. Investors reacted by
cutting bets on the likelihood of interest rate hikes.

“This shows that the central bank has plenty of space to
leave rates as they are for some time,” said Luis Flores, an
economist at brokerage IXE in Mexico City.

Analysts in a Reuters poll on average were expecting an
increase of 0.12 percent in Mexican consumer prices during
early April.

Central bank Governor Agustin Carstens said in a speech to
the banking association that policymakers were prepared to act
if inflationary pressures grew, but for now the environment
remained benign.

“Although (inflation) remains above the goal of 3 percent,
medium- and long-term inflation expectations remain relatively
stable,” Carstens said.

The yield on Mexico’s interest rate future contract due in
October (TIIV0: ) fell 4 basis points to 5.26 percent, while the
yield for Mexico’s 20-year government peso bond (MX20YT=RR: )
dropped 2 basis points to bid 7.87 percent.

The central bank is next due to review monetary policy on
May 21.

The closely-watched core consumer price index (MXCPIH=ECI: ),
which strips out some volatile food and energy prices, dropped
0.03 percent during the first two weeks of the month.

Headline prices had risen 0.46 percent in the first half of
March, while core prices rose 0.18 percent.

In a separate report, Mexican retail sales rose 2.3 percent
in February compared with the same month a year earlier, the
national statistics agency said. Analysts surveyed by Reuters
had expected sales to rise 1.5 percent.

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(Additional reporting by Noel Randewich and Tomas Sarmiento in
Acapulco; Writing by Jason Lange; editing by Carol Bishopric)

UPDATE 3-Mexico consumer prices fall in early April