August 9, 2017 / 1:58 PM / a year ago

UPDATE 2-Mexico finance minister blames tomato prices for inflation spike

 (Adds Meade comments)
    MEXICO CITY, Aug 9 (Reuters) - Mexico's finance minister
said on Wednesday that tomato prices were to blame for annual
inflation rising to the fastest pace in more than 8-1/2 years in
July, a reading that topped forecasts and could pressure the
central bank to keep interest rates high.
    Mexican consumer prices rose 6.44 percent in the year
through July             , the national statistics agency INEGI
said on Wednesday, above the 6.37 percent rate forecast in a
Reuters poll. It was the highest reading since December 2008.
    Fruits and vegetable prices rose 21.86 percent in July on an
annual basis, INEGI said. 
    Speaking in Mexico City, Finance Minister Jose Antonio Meade
said that excluding a tomato price surge, inflation would have
come in 30 basis points lower. 
    "In general terms, we still think that the inflation
trajectory will be decreasing," Meade told reporters, adding
that the current peso level will help curb price pressures.  
    The annual core rate             , which strips out some
volatile food and energy prices, rose to 4.94 percent, in line
with the poll.
    Mexico's central bank will release its next monetary policy
decision on Thursday, with all analysts polled by Reuters
expecting interest rates to remain steady at 7.00 percent.
    The central bank has hiked interest rates in its previous
seven meetings, taking the rate to a more than eight-year high. 
    In an interview with Reuters last month, Banco de Mexico
Governor Agustin Carstens said it was likely the bank would
pause its cycle of rate hikes in August.             
    A recovery in the Mexican peso this year has dampened
concerns that currency weakness could fan inflation even higher.
    Mexico's peso has rallied from a record low reached in
January as U.S. President Donald Trump backed away from threats
to impose big tariffs on imports from Mexico and moved toward a
renegotiation of the North American Free Trade Agreement.
    Consumer prices              rose 0.38 percent in July,
according to non-seasonally adjusted figures, while the core
index rose 0.27 percent during the month             .
    On top of inflation, Mexico's economy faces headwinds from
high interest rates and uncertainty around elections next year
as well as NAFTA talks starting next week with the United States
and Canada.
    Moody's said separately on Wednesday that a successful trade
deal resolution would not be enough to remove the country's
impediments to faster economic growth. 
    Implementation of the country's wide-ranging reforms and
efforts to tackle stagnant productivity would help Latin
America's No. 2 economy, Moody's said.

 (Reporting by Gabriel Stargardter; Editing by Meredith
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