UPDATE 1-Mexico Oct inflation cools; rate hike still seen

MEXICO CITY, Nov 9 (Reuters) - Mexican inflation slowed in October to its lowest annual rate in a year and a half as a weak economy curbed price increases, but the central bank is still expected to raise interest rates to offset the impact of looming tax increases. Mexican consumer prices rose 4.5 percent in the year through October, the central bank said on Monday. That was down from 4.89 percent in September and the lowest since March 2008. The central bank spent most of this year cutting interest rates to fight the country's worst recession since the 1930s, but in recent months has warned that an economic recovery and higher taxes could fuel inflation. Mexico's Congress recently passed a series of tax increases that will take effect next year. Analysts think the central bank's next move will be to raise interest rates. However, yields on rate futures were unchanged following the data, suggesting that investors had not yet shifted their bets. Analysts had expected a slighter drop in the annual rate. Prices rose 0.30 percent in October from the previous month, while the median expectation in a Reuters poll was for a rise of 0.44 percent. The closely watched core consumer price index, which strips out some volatile food and energy prices, rose 0.29 percent in October. In September, headline consumer prices rose 0.50 percent, while core prices climbed 0.43 percent. (Reporting by Jason Lange; Editing by Theodore d'Afflisio) Keywords: MEXICO ECONOMY/ ([e-mail]; Tel: [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved.

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