Retailers in Mexico offer discounts to fight inflation

MEXICO CITY — Mexican shoppers got a big new year's gift this year: At the urging of the government, major supermarket chains this month cut prices on 300 popular items, such as powdered milk, rice, meat, eggs, soap and toilet paper. The voluntary Family Assistance 2008 program offers discounts of up to 30% and will run through the end of March.

The effort promises some relief for Mexican consumers who entered 2008 facing higher taxes as well as rising prices for food and energy. It's also a way for officials to appear proactive in fighting inflationary pressures in Mexico's economy.

"Every peso matters," said Sandra Rivera, 39, a mother of three who stopped by a Wal-Mart Super Center in the capital recently to pick up discounted paper towels and cookies.

Although popular with consumers, the program has divided the private sector and is tarnishing President Felipe Calderon's conservative credentials as a free-market champion. His administration faces a revolt from manufacturers, who are at odds with retailers over who should pay for the discounts.

Ismael Plascencia, president of an influential industrial trade group known as Concamin, said the price cuts were predatory, targeting suppliers already squeezed by rising costs and shrinking profits. He said the major supermarket operators, who wield enormous clout, were forcing manufacturers to eat the full cost of the discounts and pay for promotional expenses.

"It was a decision [retailers] took without consulting us, and we're not going to continue putting up with the abuses," he said. "We're going to fight."

But Antonio Ocaranza, a spokesman for Wal-Mart de Mexico, said the program was "a way to help our customers put more in their grocery carts." The nation's largest retailer has slashed prices on 1,000 items at its 445 Wal-Mart Supercenter and Bodega Aurerra outlets.

Plascencia said industry leaders were planning to meet with retailers and government officials today to hammer out a price-cutting formula that all sides could live with. But analysts doubt that the program will have much effect despite all the drama.

"All you're doing is postponing price increases," said Alfredo Coutino, Latin America economist at Moody's Economy.com.

The spat underscores concern in Mexico and other Latin American nations over rising consumer prices in economies that have made enormous strides against inflation in recent years. The region posted an estimated average inflation rate of 5.3% last year -- half of what it was in 2003, according to the International Monetary Fund.