By Anthony Harrup

MEXICO CITY -- Mexico's inflation ended 2016 above the central bank's target as a weaker peso caused prices to accelerate in the latter part of the year, and food and energy costs also picked up.

The consumer price index rose 0.46% in December, bringing inflation for the full year to 3.36%, up from 2.13% in 2015, the National Statistics Institute said Monday. The December increase was below the 0.52% median estimate of economists polled by The Wall Street Journal.

Core CPI, which excludes energy and fresh fruit and vegetables, rose 0.45% in December for an annual increase of 3.44%.

Food prices, health costs, and hotels and restaurants posted the biggest increases last year. Energy costs rose in the second half of the year as oil prices recovered, but at 2.4% for the full year were below the overall rate of inflation.

After spending much of year below the Bank of Mexico's 3% target, inflation accelerated in the final quarter, affected in part by an increasing impact of a weaker peso on certain goods.

The risk that the currency depreciation posed for inflation led the central bank to raise interest rates five times last year, pushing the overnight rate target to 5.75% from 3.25% at the end of 2015, despite a sluggish economy.

More interest rate increases are expected in 2017 as inflation gathers steam from a bigger-then-usual increase in the minimum wage, continued peso losses against the U.S. dollar, and a big jump in gasoline prices at the start of the year.

Banks surveyed last week by Citibanamex raised their median inflation expectation for this year to 4.7% from 4% after the government raised maximum prices for gasoline and diesel between 14% and 20% in January, preparing for the gradual elimination this year of fuel price controls. Further increases could come as oil prices continue to recover.

Thirteen of the 20 banks polled by Citibanamex expect the central bank to raise rates again in February.

The peso also stumbled at the start of the year as Ford Motor Co. canceled a planned $1.6 billion assembly plant investment, stoking concerns that the incoming administration of U.S. President-elect Donald Trump could further discourage investment through protectionist measures.

The peso's slide to new lows around 21.60 to the U.S. dollar, prompted the Bank of Mexico last week to intervene in the exchange market, selling dollars to support the peso. The peso was trading in Mexico City around 21.28 to the dollar early Monday.

Write to Anthony Harrup at anthony.harrup@wsj.com

(END) Dow Jones Newswires

January 09, 2017 10:14 ET (15:14 GMT)

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