June 18, 2008 / 5:05 PM / 11 years ago

UPDATE 3-Mexico freezes basic food prices to fight inflation

(Adds details, analyst’s quote)

By Noel Randewich and Anahi Rama

MEXICO CITY, June 18 (Reuters) - Mexico is freezing prices on some 150 food products, ranging from cooking oil to beans, to ease the impact of rising global food costs on households and the economy, President Felipe Calderon said on Wednesday.

Calderon, who recently lowered import tariffs on some key foodstuffs, said industry federation Concamin had agreed to not raise prices on some foods until the end of the year.

“With this decision by Concamin, the prices of more than 150 products will freeze from today and until the end of the year,” Calderon told a news conference with the head of the industry group.

Like many countries, Mexico is feeling the effects of soaring prices of basic foods due to the increased use of biofuels and the growing demand for grains to feed a booming Asia, compounded by droughts and market speculation.

Mexican annual inflation rose to 4.95 percent in May from 4.55 percent in April, the highest rate since late 2004.

The cost of cooking oil, a large component within the consumer price index, has surged more than 50 percent over the past year. Prices of cooking oil, often made from grains, will only be frozen until the end of August, the government said.

Mexico last month reduced import tariffs to zero on a number of foodstuffs and cut prices of home-grown rice to 10 percent below international market prices as part of a package of measures to ease the effect of rising food prices on consumers.

Almost all of the products included in Wednesday’s agreement are processed foods like canned fruits and vegetables, condiments and drinks. Many items on the list are repeated in different packaging sizes.

In January, Calderon cajoled retailers, including Wal-Mart de Mexico WALMEXV.MX, into cutting prices on 300 household goods for three months. Last year, he convinced supermarkets to temporarily freeze the price of tortillas, a staple of the Mexican diet, after they jumped 25 percent.

Some economists warn that Calderon’s food deals may be delaying inevitable prices rises and could make inflation worse in long term.

“They are inherently faced with risks — they are temporary, and require further negotiations to be extended — and could face resistance from producers and retailers unhappy about sliding margins,” HSBC emerging markets strategist Clyde Wardle said in a note.

Long-standing subsidies on gasoline and other fuels, expected to cost the government $19 billion this year, have helped Mexico maintain the one of the lowest inflation rates in Latin America.

Most economists predict Mexico’s central bank will hold its key interest rate steady at its monthly review on Friday, although many expect a rise before the year is over.

“We expect the central bank to take notice of (Calderon’s) measures but to still turn more hawkish in the face of the recent acceleration of both headline and core inflation,” Goldman Sachs economist Alberto Ramos said in a report.

Analysts raised their forecasts for 2008 headline inflation to 4.39 percent in a May survey by the central bank published this month, up from 4.18 percent in April.

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