UPDATE 3-Mexico central banker sees end of inflation spike

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By Gabriela Lopez and Robin Emmott

MONTERREY, Mexico, Aug 28 (Reuters) - Mexican Central Bank Gov. Guillermo Ortiz said on Thursday the country is seeing the end of a recent inflation spike caused by surging international food and energy prices.

"The market agrees with the bank's forecast in the sense that we are seeing the end of this inflation episode," Ortiz said at an event in Monterrey.

His comments solidified broad expectations the central bank will not raise interest rates for the foreseeable future after three rate hikes in the past three months.

"The market has interpreted our messages very well," Ortiz said, adding inflation should begin to ease at the beginning of next year.

The peso <MXN=> MEX01, which has surged this year on hefty yield spreads against U.S. bonds, slumped 0.94 percent to 10.24 per dollar after Ortiz's speech.

Mexico's central bank increased its key interest rate by 25 basis points to 8.25 percent this month to tackle surging inflation, but said the crisis caused by soaring food and energy prices may be tapering off.

"In the past two months, the rise in raw materials appears to have begun to end," Ortiz said.

Oil prices have fallen by roughly 20 percent since crude hit a record high over $147 a barrel in mid-July.

Mexico's consumer prices rose 5.53 percent in the 12 months through mid-August, the fastest annual pace for price increases since March 2003.

The bank's most recent forecast is for average quarterly inflation to climb as high as 6 percent during the last three months of this year as the recent spike in global commodities costs gradually feeds into prices for products on grocery store shelves.

"A simple comparison between the producer price index and the consumer price index in the recent past suggests the transfer is not finished," Central Bank Deputy Gov. Everardo Elizondo said at an event earlier this week.

However, Mexico's economy is expected to feel the pinch of the U.S. downturn for the rest of the year, helping limit inflation pressure. Ortiz said growth would be weak into 2009.

Ortiz repeated past comments that the spike in food prices has not spread to salary negotiations and other areas of the economy, although Elizondo warned wage settlements could still be hit by inflation.

"The recurrence of price increases for goods and services that are highly visible to most consumers leads to a growing possibility that coming salary settlements could tend to be higher," Elizondo said. (Additional reporting by Michael O'Boyle and Luis Rojas; Writing by Noel Randewich; Editing by Leslie Adler)