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 Business News | February 2007 
Mexico Doesn't have an Inflation Problem, Ortiz Says
 Patrick Harrington & Adriana Arai - Bloomberg
| | Thousands of people have marched in Mexico City to protest the sharp hike of basic food products, including tortillas, and to demand the government exclude food staples from the North American Free Trade Agreement (NAFTA) - January 31, 2007. (Henry Romero/Reuters) |
Mexican central bank Governor Guillermo Ortiz said the nation doesn't have a broad inflation problem.
"There isn't a generalized increase in prices," Ortiz said today in Mexico City during the bank's quarterly press conference on the inflation outlook. "We don't have a general inflation problem."
Mexico's 12-month inflation rate has been above the top end of the central bank's 2 percent to 4 percent target range since September because of rising prices for tortillas and sugar. Inflation, excluding these food items, has been steady, the Bank of Mexico said today in its quarterly inflation report.
Ortiz used today's meeting to further explain language in the bank's Jan. 26th monetary policy statement, where it signaled it's prepared to raise the overnight lending rate if necessary. Bank of Mexico held its overnight rate at 7 percent for a ninth consecutive month last week.
Ortiz today said the board is prepared to lift borrowing costs should the increase spread to other prices in the economy and to inflation expectations.
"We hope we don't see contamination," Ortiz said. "Obviously if it does occur we will adjust monetary policy."
Both general and core inflation should end this year between 3.5 percent and 4 percent, down from between 4 percent and 4.5 percent for general inflation in the first half of the year, the bank said in its statement Jan. 26. Inflation should fall to near 3 percent in 2008, Ortiz said today.
Economists are split as to whether Bank of Mexico will be forced to raise rates during its Feb. 23 meeting.
'Tough Call'
JPMorgan economist Alfredo Thorne, who is based in Mexico City, expects Bank of Mexico to use a "pre-emptive" rate increase to bring the overnight lending rate to 7.25 percent next month.
"However, on the positive side, Banxico said that so far there is no evidence of price shocks having influenced long-term inflation expectations and it is only apparent in short-term expectations," Thorne wrote in a report today.
Juan Pedro Trevino, an economist with HSBC Holdings Plc in Mexico City, said policy makers may cut the overnight rate by a quarter percentage point in October.
"It's a tough call, though," he said in an interview in Mexico City. "There's a risk that the recent surge in inflation may drive up inflation expectations and wage negotiations."
HSBC expects the inflation rate to be above 4% through September, he said.
Tortilla Protest
Thousands of farmers, citizens groups and followers of losing presidential candidate Andres Manuel Lopez Obrador began gathering at 1 p.m. today to protest rising tortilla prices.
The marchers blocked one lane of Mexico City's main boulevard, Paseo de la Reforma, en route to the city's central square, or Zocalo.
Mexican President Felipe Calderon, who defeated Lopez Obrador in July 2 elections by less than 0.6 percentage point, unveiled measures Jan. 18 to control rising tortilla prices. The measures include an accord with thousands of retailers who have agreed not to charge more than 8.5 pesos ($0.77) for a kilogram of tortillas.
The agreement has failed to bring down prices of the Mexican staple below the accord's target, according to data on the economy ministry's web site. The average tortilla price in Mexico today is 9.12 pesos per kilogram, according to the government survey, up from about 6 pesos per kilogram in January of 2006.
To contact the reporter on this story: Patrick Harrington in Mexico City at pharrington8@bloomberg.net |
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