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 Business News | September 2007 
Bread Prices Pressure Mexican Inflation
 Associated Press
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| | (Circs 1920’s-1930’s - Los Angeles Public Library) |
Mexico City — First it was tortillas, then milk, and now Mexican bread prices are going up, corroborating the central bank's persistent warnings about food prices threatening its inflation outlook.
Mexico's baking industry confirmed this week that it plans to raise bread prices by 15 percent to 17 percent on average to recoup rising costs of wheat flour and other raw materials.
Antonio Arias Ordonez, president of the Mexican Bakeries Industry Chamber, said he expects all of the country's roughly 26,500 bread shops to raise their prices.
"It would be unusual if they didn't after raw materials costs have risen between 55 percent and 65 percent," Arias said in an interview. Apart from flour, prices of margarine, eggs and sugar, have also been rising, he added.
Rising prices of basic food products, most related to higher world commodities prices, have been a constant headache for the Bank of Mexico as annual inflation remains stubbornly above its 3 percent target, a target the bank says it expects to reach toward the end of next year.
While the Consumer Price Index was up 4 percent at the end of August, food prices were 7.1 percent higher, not including volatile fruit and vegetable prices.
The central bank raised interest rates in April, and has since kept a tightening bias, saying food prices remain a source of inflationary pressure and that the outlook for those prices isn't encouraging.
Central bankers attributed last year's missed inflation target - the CPI rose 4.1 percent, while the bank has a 3 percent target with a one percentage point tolerance band either side - entirely to supply shocks. Sugar and corn were among the culprits then, and higher milk prices have contributed this year.
The biggest uproar, however, came in January when rising corn prices pushed up the price of tortillas, the main food staple in Mexico and politically far more sensitive than bread, or even milk.
The reaction - including street demonstrations - prompted the government and industry to make a pact to hold corn flour prices steady, and cap the retail price of tortillas. The pact was rolled over in August to the end of the year, although corn prices had already eased following the harvest in Sinaloa state.
Arias said he doesn't expect a similar response to the higher bread prices, on which controls were lifted 12 or 13 years ago.
He said bakers raised their prices in November 2006, and predicted that there could be further increases at the end of this year, depending how flour costs behave.
Mexico's millers import about 3.2 million metric tons of wheat a year, or 65 percent of the needs of the bread industry.
Ramon Galindo, president of the National Wheat Milling Industry Chamber, said mills have raised flour prices about 47 percent so far this year, as the price per bushel of wheat went from $4.90 in January to $8.50 in August.
Wheat prices have nearly doubled in the past year, and recently hit all-time highs. December wheat futures on the Chicago Board of Trade were $8.45 per bushel Wednesday, below the contract high of $9.07, although further increases aren't ruled out. |
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