June 7, 2018 / 1:48 PM / a year ago

UPDATE 2-Mexico inflation eases to 17-month low in May, peso weakness eyed

 (Adds analyst comment, context, details)
    MEXICO CITY, June 7 (Reuters) - Mexican annual inflation
eased to a 17-month low in May thanks to a retreat in food price
pressures, but the headline rate was slightly higher than
expected, data from the national statistics agency showed on
    Consumer price inflation slowed to 4.51 percent last month
from 4.55 percent in April, the agency said. However, the rate
exceeded the 4.43 percent forecast of analysts in a Reuters
    The annual rate was the lowest since a reading of 3.36
percent in December 2016, official data showed.
    Annual inflation accelerated sharply in 2017 when
government-set gasoline prices began being phased out, bumping
up the cost of fuel in Latin America's No. 2 economy.
    The data follow a slide in the peso currency on concerns
about the future of the North American Free Trade Agreement
(NAFTA) in the wake of U.S. President Donald Trump's decision to
impose tariffs on U.S. imports of steel and aluminum.
    That decision kicked off a tit-for-tat trade spat between
the United States and several allies, including Mexico and
Canada, which have spent months locked in negotiations trying to
revamp the 24-year-old trade accord at Trump's behest.
    Peso weakness could put upward pressure on the cost of
imports, and analysts from Capital Economics said the
depreciation increased the likelihood that the Mexican central
bank could raise interest rates later this month.
    "The decision will clearly be a close call, and a lot can
happen between now and the meeting," they wrote in a note to
clients. "But for now, we're sticking to our guns for rates to
remain unchanged."
    The Mexican central bank targets inflation of around 3
percent, and in February it hiked interest rates to 7.50 percent
to contain inflation risks. The bank's key lending rate is at
its highest level since early 2009.
    Compared with the previous month, consumer prices fell 0.16
percent in May, less than the 0.23 percent drop forecast in the
poll. The core index, which strips out some volatile food and
energy prices, rose 0.26 percent during the month             .

 (Writing by Dave Graham; Editing by Bernadette Baum and Dan
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