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Analysts Expect Mexico’s Inflation Rate To Remain High

June 12, 1985

MEXICO CITY (AP) _ Despite a fresh surge in consumer prices early this year, many analysts predict that Mexico’s inflation rate will ease in coming months but still not drop much below the 59.2 percent of 1984.

The government has set a target of holding inflation to 35 percent this year but most economists see little likelihood that goal will be met.

Mexico, saddled with a foreign debt of about $96 billion, has brought its inflation rate down from 98.8 percent in 1982 in belt-tightening moves widely praised by the international banking community. Some of the measures were imposed as part of a financial aid package the government worked out with the International Monetary Fund.

But some analysts fear that efforts to reduce it even more are lagging, although they readily acknowledge the difficulties in wringing inflation out of the economy, which is the world’s 10th largest market economy.

″Inflation is still sticking up there. It’s higher than it ought to be,″ said Cynthia Powell, an economist at Chase Econometrics, an economic research firm in Bala Cynwyd, Pa.

The inflation rate, she said, could reach 57 percent to 58 percent this year.

Abel Beltran-del-Rio, director of Diemex-Wharton Econometrics in Philadelphia, said the Mexican government wants to reduce the inflation rate but ″there are so many pressures″ keeping prices up.

He foresees prices rising 52 percent to 53 percent this year, while Javier Murcio, an economist at the forecasting firm of Data Resources Inc. in Lexington, Mass., projects a 46 percent rate.

An economist in the Mexican government said that while the government is officially holding to its 35 percent forecast, the price increase could wind up in the mid-40s to the mid-50s, depending on what inflation-fightin g steps are taken in the second half of the year.

This economist, and even those interviewed in the private sector here, spoke on condition they not be identified. Some said they did not want to anger government officials with their views.

Consumer prices surged 7.4 percent in January, which Murcio said reflected wage increases and price rises on basic commodities that the government put into effect at the start of the year.

In February, prices rose 4.2 percent. They climbed 3.9 percent in March and 3.1 percent in April.

In comparison, consumer prices in the United States, as measured by the Labor Department’s Consumer Price Index, increased 0.2 percent in January and 0.4 percent in April. Analysts forecast that for the year as whole, U.S. inflation will match - or even better - the 4 percent of last year.

Analysts, both inside and outside the Mexican government, are watching to see what decisions it makes in the months ahead to ease price pressures.

The government is expected to announce shortly a mid-year increase in the minimum wage, and analysts say that to restrain inflation it should be no more than 15 percent to 20 percent. The minimum wage, boosted by 30 percent in January, is now about $4.50 a day in Mexico City.

Higher wages generally translate into higher prices as employers try to make up for the additional labor costs.

Economists also forecast an easing of government spending - considered a key factor in keeping prices up - after the July 7 elections for Congress and the governorships of seven of the 31 states.

The opposition National Action Party has mounted an energetic campaign in the northern part of the country against President Miguel de la Madrid’s Institutional Revolutionary Party.

Many analysts see signs - although they have not been able to come up with a price-tag - that the government has maintained a strong level of public spending in advance of the elections.

Mexico’s public sector deficit was 2.2 trillion pesos in 1984, representing 7.4 percent of the gross domestic product.

The U.S. deficit was $185.3 billion for the fiscal year that ended Sept. 30, or 5.1 percent of the gross national product, which is roughly equivalent to GDP.

Also in the second half of the year, some analysts are watching to see if the government will adopt measures that might allow more foreign goods into the economy, putting competitive pressures on domestic firms to lower prices.

Other inflation-fighting measures they recommend would slow the rise in the amount of money that flows into the economy and restrain increases in government-set prices on basic commodities and in prices of goods produced by government-owned corporations.

Such steps also would work to slow down the economy, which has been growing at a faster rate than had been expected. Last year’s pace was 3.5 percent, after adjustment for inflation, and economists say the performance could be even stronger this year.

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