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Inflation Figures Fall in Mexico

January 7, 2000

MEXICO CITY (AP) _ Consumer prices in Mexico rose 12.3 percent last year, the lowest yearly rise since the nation’s 1994 financial crisis and a sign of economic strength at the start of this election year.

The central bank’s inflation report on Friday was welcome news for President Ernesto Zedillo, who has repeatedly stressed that the country’s underlying economic strength will help prevent the kind of crises that have accompanied the last four presidential transitions.

Still, much of the country hasn’t recovered from the crisis that broke out weeks after Zedillo took office in December 1994. Investors stampeded out of Mexico, sending the peso and stocks plunged and triggering surging inflation and interest rates. The government avoided default on its international debts only through a $50 billion U.S.-led international bailout.

Inflation has gradually eased since jumping to 52 percent in 1995. After falling to 15.7 percent in 1997, it increased to 18.6 percent in 1998, a year of international economic turmoil and falling prices of oil _ the country’s main export. The government had projected 13 percent inflation for 1999, but many analysts thought it would be higher.

In a speech Thursday, Treasury Secretary Jose Angel Gurria credited the lower inflation to ``fiscal discipline, together with the restrictive monetary policies of the Bank of Mexico and the joint efforts of all of the sectors of production.″

The government has projected 10 percent inflation for this year. But its ability to meet that projection will depend in part on what happens to the economy of the United States, its main trading partner. Higher U.S. interest rates could raise costs for some Mexican businesses and weaken the peso _ both factors that could accelerate inflation.

Despite the progress in fighting inflation, some economists say the government and central bank haven’t been aggressive enough.

``Twelve-and-a-half percent continues to be too high when our trading partners, such as the United States, Canada, and European countries, have inflation levels below 3 percent,″ said Juan Carlos Leal, research director for TV Azteca’s economic strategy division.

Some Mexicans say they believe prices have risen well beyond the 12.3 percent reported by the central bank.

Miguel Antonio Colchado, the owner of a business that provides food and beverages to businesses, said he’s paying 15 percent to 17 percent more to his suppliers and has raised his prices 17 percent to 20 percent.

``That’s OK for those who contract our services,″ he said. ``But for regular people, the bulk of the economy isn’t healthy, because their salaries aren’t increasing by that percentage.″

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