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UPDATE 3-Mexico quickens pace of gasoline price rises
July 8, 2008 / 2:56 AM / 9 years ago

UPDATE 3-Mexico quickens pace of gasoline price rises

(Adds government comment)

By Luis Rojas Mena and Jason Lange

MEXICO CITY, July 7 (Reuters) - Mexico is quickening the pace of gasoline price increases, fanning worries about inflation, as the rising cost of subsidizing imported fuel weighs on the government’s finances.

The price of Mexico’s standard grade gasoline, known as Magna, jumped 6 centavos on July 1 to 7.23 pesos a liter, a spokeswoman for state-run oil monopoly Pemex said on Monday.

It was the sharpest increase in at least 2-½ years by the government, which sets fuel prices.

Concern that the price increase could fuel inflation hit government bonds, which were already under pressure from news of a hike in cement prices.

A spokesman from the finance ministry said the increase was part of the government’s normal price fixing-scheme.

“This is within the same policy, there is no intention of raising the price outside of our plans,” Rodrigo Brand from the finance ministry told Reuters.

But some consumers were surprised by the price hike.

“They should let us know before they make any changes,” said Argelia Lozano, a 37 year-old housewife, adding that the price changes made it more difficult to cope with rising food costs.

Mexican inflation rose to 4.95 percent in May, its fastest rate in more than three years on rising global food prices.

“The inflation outlook hardly needs another source of pressure,” Pedro Tuesta, a U.S.-based analyst at 4Cast consultancy, said in a report.

BIG SUBSIDIES

President Felipe Calderon promised last month to keep fuel subsidies in place that are expected to cost the government close to $20 billion this year as soaring world oil prices jack up the cost of imported fuel to Mexico.

A lack of domestic refining capacity means Mexico must import about 40 percent of its gasoline, despite being the world’s No. 6 producer of crude oil.

Yet government subsidies mean fuel prices at Mexican pumps are far below U.S. levels.

The price of the benchmark government 10-year bond MX10YT=RR fell 0.704 of a point to bid 90.371, pushing its yield up 12 basis points to a two-year high at 9.29 percent.

Mexico’s Congress approved a bill in September to gradually increase gasoline prices by 5.5 percent over 18 months, but to calm a public outcry over the move, Calderon put off applying the increases until January.

The price of Magna was raised by 2 centavos in January to 7.03 pesos per liter. It was lifted by another 2 centavos in both February and March before rising 3 centavos in April and then 4 centavos in June.

Keeping gasoline cheap prevented the government from posting windfall oil profits during the first quarter, even as the price of Mexican crude soared well above budgeted forecasts. (Additional reporting by Catherine Bremer) (Editing by Kim Coghill) ($1 = 10.3335 pesos)

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