Calderon today announced the goal is to avoid hurting poor families already affected by the rising cost of other products.
A 5.5% tax on gasoline is part of a broader fiscal reform that Calderon proposed and Mexico's Congress approved earlier this month.
The tax was to be applied gradually over a period of 18 months, starting in October, and revenues from the tax were to be distributed to Mexico's state governments.
Calderon didn't say when the gasoline tax would go into effect or for how long he would block electricity and LP gas increases.
Via: Associated Press
Calderon Postpones Mexico Gas
Tax to Avoid Backlash
Mexican President Felipe Calderon postponed a new gasoline tax and halted fuel-price increases for the rest of the year, bowing to lawmakers who said his plan to overhaul tax legislation would stoke inflation.
The freeze on fuel and electricity prices is needed to ensure inflation doesn't hurt poor families, Calderon said today in a speech from his Mexico City residence. The president also called on manufacturers not to raise prices this year.
Calderon is seeking to quell criticism from lawmakers who say his tax overhaul legislation, approved by Congress Sept. 14, hurts low-income families. Members of opposition parties, as well as Calderon's National Action Party, have said the 5.5 percent tax on gasoline in the new legislation unfairly burdens the poor who must drive for work.
``This is really a response to a political issue more than to an inflation issue,'' Gray Newman, senior Latin America economist with Morgan Stanley in New York said in a telephone interview. ``Inflation for this year is largely written.''
The yield on the government's 10-year benchmark bond fell for the second day. Yields on the 7.25 percent bonds due in December 2016 fell 4 basis points, or 0.04 percentage point, to 7.86 percent. The price, which moves inversely to the yield, rose 0.26 centavo to 95.99 centavos per peso, according to Banco Santander SA.
Calderon, during his speech today, also thanked Mexico's association of retailers for agreeing to cap the price of a bread roll at 1 peso even as wheat prices rise. In August, Mexico extended an agreement with retailers to limit the price of a kilogram of corn tortillas to 8.50 pesos for the rest of the year.
The freeze on fuel-price increases for the rest of the year will cost the government-run energy sector as much as 9 billion pesos ($824 million), Jesus Reyes Heroles, chief executive officer of Petroleos Mexicanos, said in a radio interview on Grupo Formula.
Inflation
Economists such as JPMorgan Chase & Co.'s Alfredo Thorne and Moody's Economy.com's Alfredo Coutino said in notes to clients that Calderon's measures are unlikely to change Mexico's inflation outlook this year.
Mexico's annual inflation rate has remained above the central bank's 2-to-4 percent target range in eight of the past 12 months on rising costs of fruits, vegetables and grains.
Calderon today said members of the opposition Institutional Revolutionary Party and of his own party had asked him not to implement the gasoline tax this year.
``The discussion of this measure has unfortunately taken place during an adjustment of international prices for different products, among them wheat, which has affected the family economy,'' Calderon said. ``To avoid this, I have decided to postpone the gasoline-price increase according to the terms solicited by legislators.''
The Bank of Mexico targets inflation at 3 percent for year- end 2008. In their policy statement Sept. 21, central bankers said they will evaluate how the government's tax plan will affect inflation and will announce new inflation targets for the next two years in October.
The central bank, which has held a ``restrictive bias'' since May, said in its last statement that pressure on inflation from foods such as milk and wheat had increased.
``Mexico is facing inflationary pressure that puts the central bank in a very difficult position,'' said Rafael de la Fuente, chief Latin America economist at BNP Paribas in New York.
Via: Bloomberg
