Mexico inflation cools in early March on lower food costs

The annual pace of Mexican consumer price gains cooled in early March on a drop in food costs, but core inflation rose to its highest in more than a year, data showed on Tuesday.

Inflation in the 12 months through mid-March was 2.71 percent, the national statistics institute said, below a forecast 2.78 percent rate in a Reuters poll and down from 2.80 percent in the second half of February.

Mexican inflation hit successive record lows from May through December last year, but the annual pace of price gains began to rise in January.

The central bank expects inflation to rise slightly above its 3 percent target during 2016, but fall back toward the target by the end of the year.

Last week, the central bank held its main interest rate at 3.75 percent, but warned it could raise borrowing costs if a weak peso begins to hit inflation expectations.

The bank hiked borrowing costs in February and December after a deep slump in the peso.

Mexican central bank board member Manuel Sánchez said in a presentation published on Tuesday that policymakers needed to be watchful for any further peso depreciation stoking inflation and sparking second-round effects, such as demands for higher wages.

The bank said the Sánchez presentation was given on Monday in New York. In it, he also argued that "current benign inflation represents an unprecedented opportunity to consolidate convergence of inflation to the permanent target."

The bank targets inflation of around three percent, with a one percentage point tolerance zone either side.

Consumer prices rose 0.1 percent in the first half of March , below an expected 0.15 percent, tamed by drops in onion and tomato prices.

The core index, which strips out some volatile food and energy prices, rose 0.30 percent, above an expected 0.15 percent, on higher tourism packages and air travel costs.

The 12-month core inflation rate rose to 2.86 percent, above the poll's expectations of 2.70 percent and 2.70 percent in the second half of February, its highest early-month rate since December 2014.