Bloomberg — Mexico’s Finance Ministry plans to renew in February its inflation pact with big businesses that aims to contain the cost of basic goods by removing import barriers and curbing some food exports, according to people familiar with the matter.
The program, which began in May and was first renewed in October, has the goal of reaching an 8% reduction in the price of 24 key goods by February compared to their average peak level. President Andres Manuel Lopez Obrador has championed the program as a way of easing the steep impact of price increases on poor communities, with inflation hitting its highest level in more than two decades in September.
Businesses have shown interest in continuing the agreement, and the government plans to extend it again beyond its current end date, said the people, who asked not to be named while discussing plans that haven’t been finalized and could change. The government may add some new measures and remove some existing ones, one of the people said, without elaborating.
Inflation in Latin America’s second-largest economy accelerated to 7.7% in early December, up from 7.46% in the previous two weeks but below its early September peak of 8.78%.
Some of Mexico’s top companies, including supermarkets Wal-Mart de Mexico SAB, Grupo Comercial Chedraui SA and Organizacion Soriana SAB as well as food producers such as Gruma SAB, Industrias Bachoco SA and Sigma Alimentos SA are currently part of the pact.
The program has sought to cut costs for businesses by pausing certain tariffs and import barriers, while reducing paperwork requirements. In return, businesses have agreed to keep average prices of the key goods below an agreed limit. Chedraui, Soriana and Walmex have stuck to their pledge, the head of Mexico’s consumer watchdog said earlier this month.
In a bid to boost domestic supply, the government has also paused exports of goods like white corn, beans and sardines, as well as scrap metal used for food cans. A move to temporarily lift some food sanitary requirements met with criticism from a top business chamber, which said it could put both consumers and Mexico’s agricultural exports at risk.
Subsidy impact
The government’s unorthodox policy overlaps with a more classic monetary approach. Mexico’s central bank has hiked its key interest rate 650 basis points to a record 10.5% in a tightening spree that began in June last year.
Mexico’s various inflation fighting programs are expected to cost around $28 billion this year, with most of the money spent on fuel subsidies, Finance Minister Rogelio Ramirez de la O said in August. The fuel subsidy is expected to continue for a while longer, one of the people said.
The subsidy and other anti-inflation efforts shaved 2.6 percentage points off inflation, Ramirez de la O also said at the time. The items covered by the pact didn’t slow overall price growth between May and September, but in October through November they subtracted 0.4 points from headline inflation, Andres Pardo, chief Latin America macro strategist at XP Investments, wrote in a note this month.
Lopez Obrador has argued the agreements can’t be considered price controls because companies are free to decide the prices for themselves.
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