Mexico's central bank increased its benchmark interest rate for the third straight month to stop quickening inflation from spreading throughout the economy.

The bank's five-member board, led by Governor Guillermo Ortiz, raised the key lending rate by a quarter of a percentage point to 8.25 percent today, the highest since December 2005. The decision matched the forecast of 22 of 30 economists surveyed by Bloomberg. Seven others said the rate would stay unchanged and one predicted a half-point increase.

Policy makers raised borrowing costs in a bid to prevent price increases for food and energy from spreading to other items and fueling wage increases, said Gray Newman, chief Latin America economist with Morgan Stanley in New York.

``This is largely a preemptive move,'' Newman said in a telephone interview. ``It's the central bank stating that they would rather act now and nip home-grown inflationary pressure in the bud rather than act later and deal with market uncertainty.''

On July 30, the bank surprised analysts by raising its inflation forecasts by an average of 0.89 percentage point over the next two years. It said annual inflation will rise as high as 6 percent in the fourth quarter, up from a previous forecast of no more than 4.75 percent.

Consumer prices climbed 5.39 percent in July from a year earlier, driven by higher costs for food and gasoline. It was the sixth straight month inflation accelerated.

Anchoring Expectations

Policy makers are betting higher borrowing costs will bring the annual inflation rate closer to the bank's goal of 3 percent, said Rodrigo Valdes, chief Latin American economist at Barclays Capital. The bank said last month that inflation will probably remain above its target until 2010, after previously expecting to reach its objective in 2009.

``We see an increase in rates as something that would really help to anchor inflation and get it toward the target faster,'' Valdes said in a telephone interview.

Mexico's peso rose 7.2 percent this year through yesterday as interest-rate increases by Banco de Mexico swelled the gap between Mexican and U.S. benchmark lending rates to the widest since 2005.

Mexican President Felipe Calderon in June announced an accord with industry groups to freeze the price of canned tuna, coffee, beans and about 150 other items in a bid to hold down prices. Wheat, corn and rice reached records on global markets this year, before retreating because of improved crop forecasts and a strengthening dollar.

Calderon has also tried to fight higher food prices by lifting import tariffs on corn, wheat, rice and beans in May. He eliminated import taxes on nitrogen-based fertilizer, and cut in half the tax on imported powdered milk.

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