MEXICO CITY (Reuters) - Mexican inflation cooled in early June as prices for fresh food fell, backing central bank forecasts for tamer prices in the second half of the year, although a weak peso could still upset the inflation outlook.
Inflation in the 12 months to mid-June eased to 4.24 percent from 4.63 percent in the year through May, below the 4.41 percent expected in a Reuters poll, data released on Monday showed.
Although inflation is set to overshoot the central bank's 4 percent ceiling for a fourth straight month in June, policymakers are confident price gains will cool further in the second half of the year, partly due to weak growth in Latin America's number two economy.
Markets have priced out the chance of further interest rate cuts after a surprise decrease in March to the current 4 percent as expectations mount for an easing in stimulus from the U.S. Federal Reserve, which may weaken the peso further and push up import prices.
But some economists still see a window for further easing later in the year, although the weak currency -- which has fallen almost 4 percent since Fed Chairman Ben Bernanke said last week that U.S. policymakers might tone down bond purchases later this year -- remains a wild card.
"The thing that is not clear is how permanent the fall in the peso is and how that will affect prices in coming months," said 4Cast economist Pedro Tuesta.
BNP Paribas economist Nader Nazmi, who expects further easing in September and October, said the normalization of agricultural prices should bring inflation below 4 percent in the fourth quarter.
"I think it opens up the door for the central bank to cut the policy rate given growth is slowing," he said.
Mexico is closely linked to the United States and growth slid to a crawl in the first quarter, although officials expect a recovery in the second half of 2013.
Data from the national statistics agency showed the 0.05 percent fall in prices, which compared with expectations for a 0.11 percent rise, was driven by a drop in fresh food prices, especially green tomatoes and limes.
Core consumer prices, which strip out some volatile food and energy prices, rose 0.07 percent, compared with forecasts for a rise of 0.12 percent. Inflation in services, a key gauge of domestic price pressures, remained modest at 2.5 percent.
Weak growth tends to dampen inflation pressures and also pushed up unemployment in the first months of 2013, although seasonally adjusted figures showed a welcome dip in May.
Reporting by Krista Hughes; Additional reporting by Noe Torres; Editing by Chizu Nomiyama and Dan Grebler