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Mexico is freezing prices on scores of food staples

Producers vow to cap costs through 2008 as the government and consumers grapple with rising inflation.

June 19, 2008|Marla Dickerson | Times Staff Writer

MEXICO CITY — Mexican President Felipe Calderon on Wednesday announced a price freeze on more than 150 pantry staples as part of a pact with producers that have promised to cap prices through the end of the year.

It's the second such deal he has reached with the private sector this year, underscoring the government's fears about inflation, which last month hit an annualized rate of 4.95%, a 3 1/2 -year high.

Under the agreement, food processors affiliated with some of Mexico's largest industrial trade groups have agreed to hold the line on prices of basics including canned tuna, refried beans, coffee, soup and juice.

Producers are essentially agreeing not to pass on their rising production costs to consumers. That enables the government to achieve price controls without direct economic intervention, such as through subsidies or ordering sanctions against manufacturers.

"This reflects a commitment by Mexican entrepreneurs with the country," Calderon said. "Fixed, stable prices . . . will be an enormous help to family budgets."

In January, Calderon's government negotiated a similar pact with major grocery chains to roll back prices on more than 300 items until the end of March. He reached yet another price-cap deal with tortilla producers last year.

Food prices are rising sharply worldwide thanks to a variety of factors. Consumers in the booming economies of China and India are demanding more protein. Crops such as corn and sugar cane that used to be grown primarily as foodstuffs are increasingly being turned into biofuels. Bad weather is affecting world grain harvests. Record oil prices are making it more expensive to plant, harvest, process and transport products.

Calderon has good reason to focus on pocketbook issues. Across Latin America, rising food and fuel prices have reignited inflation fear in this region. Less than a decade ago, Mexicans endured inflation approaching 20% annually, which was devastating to their paychecks and savings.

Mexico's central bank raised interest rates last fall to combat inflation. Pressure is growing for another hike. Calderon is loath to let that happen, because that would probably slow the growth of Mexico's economy, which so far is holding up reasonably well in the face of a U.S. slowdown.

To keep inflation in check and defuse rising social tension, he is embracing a variety of free-market and populist measures.

In recent weeks, his administration has dropped all duties on imported grain and upped cash payments to families enrolled in the nation's largest anti-poverty program. This year, the government is expected to spend in excess of $20 billion subsidizing the cost of gasoline, a practice that analysts say is unsustainable if crude prices continue to rise.

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marla.dickerson@latimes.com

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