MEXICO CITY, May 14 (Reuters) - The price of tortillas, a political hot button in Mexico where the corn pancakes are an everyday staple, is expected to jump about 18 percent by June on rising costs for fuel and corn, a major industry group said on Wednesday.

Average tortilla prices should rise to 10 pesos per kilo in June from 8.5 pesos per kilo now, Rafael Ortega, who heads the National Chamber for the Tortilla and Dough Industry, told Reuters. Ortega's organization groups together about 40 percent of the country's tortilla producers.

The chamber's forecast, together with other projections of even sharper increases that have been published in Mexican newspapers, contradicted recent statements from major retailers that tortilla prices will not rise sharply this year.

Food costs are a serious concern for the poor in Mexico, where the minimum wage is around 5 dollars a day. In the past, the government has made deals with retailers and producers to control tortilla costs.

Investors seized on the forecasts as more evidence that the price increases will fuel higher inflation and might lead the central bank to raise interest rates this year.

Yields on Mexican interest rate futures < 0#TII: > surged on Wednesday, showing investors had significantly increased bets of a rate hike sometime this year.

The yield on Mexico's benchmark 10-year peso bond < MX10YT=RR > rose 7 basis points to bid 8.10 percent.

Ortega said the average price for a tonne of milled corn has jumped to 3,650 pesos from 3,000 pesos in January.

"It is just supply and demand," Ortega said.

Global grain prices have surged on higher demand from countries like China, scanty harvests in many countries and growing demand for grain from the biofuel industry.

In some parts of the world, soaring prices for basic food staples such as rice have sparked street protests and riots.