Mexico's annual inflation rate rose to the highest level in seven months as costs increased for vegetables, airline fares and tourist packages.

Bloomberg reported on Thursday, that prices in Latin America's second-biggest economy rose 4.97 per cent in March from a year earlier and 0.71 per cent from a month earlier, the central bank said today on its Web site. The report was in line with the median analyst estimates compiled by Bloomberg. Core inflation, which excludes some food and energy prices, was 0.36 per cent in March, the central bank said.

'The relatively high March headline inflation reading was largely part of the salsa effect, as volatile ingredients like tomatoes and onions spiked up,' said an economist with Morgan Stanley, Mr. Luis Arcentales in New York, adding that it's unlikely the bank will react to the report by raising borrowing costs.

Mexico's central bank last month held the benchmark interest rate unchanged at a record low 4.5 per cent for a seventh straight meeting, saying inflation will stay in line with its first-quarter forecast of 4.25 per cent to 4.75 per cent.

'Inflation continues to be explained by the most volatile products, agriculture products,' said a senior economist at Banco Santander SA in Mexico City, Mr. Delia Paredes. 'The bank won't raise rates until the end of the year.'

The peso strengthened 0.5 pe rcent to 12.2374 per US dollar New York time.

Medium- and long-term expectations for price increases remain well-anchored, even as accelerating economic growth makes it harder to keep inflation in check, Banco de Mexico said in the statement accompanying last month's decision.