Food prices push Mexico inflation to 3-year high

By Jason Lange and Noel Randewich
REUTERS

10:31 a.m. May 8, 2008

MEXICO CITY – Spiraling world food prices pushed Mexico's inflation to a three-year high in April, reinforcing expectations the central bank will not cut interest rates to stave off the effect of a feared U.S. recession.
Mexican consumer prices rose 4.55 percent in the 12 months through April, up from 4.25 percent in March, the central bank said Thursday.

It was the highest annual inflation reading since May 2005, when it stood at 4.60 percent.
Inflation across Latin America has jumped in recent months as rapidly developing economies like India and China boost demand for food commodities and as grains are diverted to make biofuels.

Investors in recent weeks have given up expectations that Mexico's central bank could cut interest rates to counter the effect of a feared U.S. recession.

Economists now widely expect no change in interest rates this year. But they also warn that persistently high inflation may force Mexico's central bank to hike rates.

Central bankers will closely watch upcoming data for signs of a dip in Mexico's economy, which so far has done well despite the U.S. slowdown but is expected to feel the pinch this quarter.

“If that data doesn't suggest economic growth is being impacted as much as previously expected, then I think the probability of hiking rates will increase,â€