* Mexico, Chile central bankers warn about inflation
* Brazilian annual inflation rate highest since Nov 2008
* Central bankers in tight spot given FX strength
By Jason Lange and Brad Haynes
MEXICO CITY/SANTIAGO, March 4 (Reuters) - Mexican and Chilean central bankers warned of rising inflation risks on Friday while the annual pace of price increases in Brazil neared the upper limit of the government's target range.
The comments and data reinforced expectations of interest rate hikes in the region and underlined the challenges facing Latin American policymakers, who want to fight inflation without fueling further hurtful gains in their currencies.
"They are caught in a corner here," said Enrique Alvarez, an economist at IDEAglobal in New York.
Chile's central bank president said policymakers must attack inflation to mitigate risks from higher oil and food prices.
"Not attacking inflationary pressures could affect credibility," Jose De Gregorio said in a speech in Paris. For more, see: [ID:nN04154164]
His comments contrasted with minutes from the central bank's February rate-setting meeting released earlier on Friday, in which some board members cautioned against "overreacting" to rising inflationary expectations. Nonetheless, De Gregorio's view was seen as a signal the bank could opt for steeper interest rate hikes in the future.
Boosted by strong demand for its exports, Latin America has bounced back from the global recession and, with Asian powerhouses like China and India, is helping drive global economic growth.
Chile and Brazil are among a slew of emerging market countries that tightened monetary policy this year to fight inflation fueled by higher global prices for food and commodities. The rate hikes, however, have led currencies to appreciate despite aggressive measures by policymakers to contain them and the stronger currencies are hurting exports. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Latin American growth, inflation: http://r.reuters.com/wud48r Latin American currencies: http://r.reuters.com/sux38r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
CURRENCY WARNING
Mexico's central bank also warned about inflation, although it left interest rates steady on Friday, as widely expected. [ID:nN04177491]
Sounding a new alarm about risks to inflation, Mexico warned about the risk of a sudden fall in the value of its currency. Policymakers said they worry uprisings in the Middle East and Africa could hit the peso, which would boost consumer prices by making imports more expensive. Bad local weather, which has hit corn and vegetable crops, is also a risk to Mexican inflation, it said.
"All of these factors hurt the balance of risks for inflation," the policy board said, adding that it nonetheless was not altering its inflation forecast.
In Brazil, the monthly pace of price increases inched down in February but an annual reading rose to above 6 percent, the highest since November 2008. That is painfully close to the 6.5 percent upper bound of the government's target range.
The lack of major surprises in the February price data, however, may allow the central bank to raise rates by another 50 basis points, rather than a bigger increase, at its next meeting on April 19-20. [ID:nN04261260]
Easy money policies in the United States and an artificially weak Chinese currency have put the region in a bind, economists say.
On the one hand, policymakers like Mexican central bank chief Agustin Carstens say money printed by the U.S. Federal Reserve is helping boost commodities prices, which is fueling inflation through higher food and energy costs.
On the other hand, raising interest rates to fight inflation attracts the money minted by the Fed, pushing exchange rates up and hurting exports. (Additional reporting by Nathalia Ferreria and Luciana Lopez in Sao Paulo; Daniel Flynn in Paris; Editing by Dan Grebler)