UPDATE 1-Mexican inflation cools more than expected in April
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By Alexandra Alper
MEXICO CITY May 7 (Reuters) - Mexico's annual inflation rate eased in April to just above the central bank's 3 percent target partly due to lower electricity costs, even as a slumping peso threatens to push consumer prices higher.
Inflation in the 12 months through April reached 3.06 percent, below the 3.10 percent expected in a Reuters poll, and the 3.14 percent annual rate in March. Price drops for low octane gasoline and tourist packages also helped cool the rate.
At the beginning of the year, Mexico's government lowered electricity rates across the board and vowed not to raise gasoline prices for the remainder of 2015, ahead of local elections.
Like fuel, power rates in Mexico are set by the government, although a sweeping energy reform finalized last year will gradually expose both to market forces in the years to come.
Mexico's annual inflation rate had previously eased after hitting a nine-month high in October, and the central bank has said it expects inflation to end the year below 3 percent amid slack domestic demand.
The Banco de Mexico held borrowing costs steady last week at a record low of 3 percent, pointing to persistently sluggish economic growth and noting that inflation pressures remained muted following a deep slump in the peso.
The Mexican currency hit record lows earlier this year, dragged down by plunging oil prices and concerns over the prospect of higher U.S. interest rates, which could prompt investors to dump riskier emerging market assets.
Central bank chief Agustin Carstens said on Wednesday that while domestic growth and inflation do not suggest the need to move interest rates, Mexico's central bank may have to act fast if external conditions hit the peso and inflation expectations.
Consumer prices fell 0.26 percent in April from March, compared to expectations for a 0.24 percent drop. Core inflation, which strips out some volatile food and energy costs, rose 0.16 percent, just above expectations for a 0.15 percent rise. (Reporting By Alexandra Alper and David Alire Garcia; Editing by Simon Gardner and Paul Simao)
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