Jan. 18 (Bloomberg) -- Mexican President Felipe Calderon unveiled measures to stem a surge in prices for corn tortillas, the mainstay of the country's diet, as eroding support among the poor threatens to undermine his 48-day-old presidency.

Calderon said companies such as Grupo Bimbo SA, Mexico's largest baker, agreed to hold tortillas at less than 8.5 pesos ($0.78) a kilogram, about 2.5 pesos below the current top price. The country's retailers group, which counts about 1,900 members including Wal-Mart de Mexico SA, will price tortillas at no more than 6 pesos per kilogram, Economy Minister Eduardo Sojo said.

``The tortilla is the principal component of the Mexican diet and a fundamental staple for those who have the least,'' Calderon said in a message broadcast today from the presidential residence. ``The unjustified increase in this product threatens the economy of millions of families and their quality of life.''

Calderon, who warned in his campaign last summer that policies of his rival Andres Manuel Lopez Obrador would unleash inflation, now faces a rise in food prices that has pushed a kilogram of tortillas to about one-fifth the daily minimum wage. The jump in tortillas, a component of core inflation, may force the central bank to raise interest rates, exacerbating an economic slowdown that would make tatters of Calderon's election pledge to create jobs.

While global demand for feed corn for ethanol fuel production has pushed prices to a 10-year high, Calderon today said world markets don't explain the cost of white-corn tortillas in Mexico.

``We will not tolerate speculators or hoarders,'' Calderon said. ``We are going to apply the law firmly and punish those who seek to take advantage of the needs of the people.''

`Bad Start'

At a tortilla stand in the Cuauhtemoc neighborhood in Mexico City yesterday, a line of shoppers waited for fresh tortillas selling for 10 pesos a kilogram. Leticia Balino, 45, who has worked at the stand for 25 years, said the climbing price has caused sales to drop by about 100 kilograms a day.

``The government of Calderon is getting off to a really bad start,'' she said. ``They need to do something because it's getting to the point that those who earn the minimum wage can't survive.''

Calderon, 44, last week opened an investigation into whether corn distributors were manipulating prices by hoarding supplies. He also boosted duty-free imports of corn to temper prices.

Mexico's 10-year local-currency bond rose for the first time in two weeks as Calderon's action on tortillas help calm inflation concerns. The yield on Mexico's 8 percent peso bond fell 7 basis points, or 0.07 percentage point, to 7.88 percent today, according to Santander Central Hispano SA. The price of the peso bond due December 2015 rose 0.42 centavo to 100.73 centavos per peso. Bond yields move inversely with prices.

Inflation

Today, Sojo said Mexico's 22,000 government stores would sell corn at no more than 3.5 pesos a kilogram. Sojo also said Mexico will import as much as 750,000 metric tons (826,733 U.S. tons) of duty-free corn for human consumption, most of it from the U.S., after saying Jan. 12 Mexico would import 650,000 metric tons. Mexico will also import 2.9 million metric tons of duty-free corn for use as animal feed.

Corn futures for March delivery climbed 4.25 cents, or 1 percent, to $4.1225 a bushel on the Chicago Board of Trade, the highest since July 1996. Prices have doubled in 12 months.

Mexico's Institutional Revolutionary Party, which held the presidency for 71 years until President Vicente Fox's 2000 victory, guaranteed tortilla prices for decades by selling subsidized corn to tortilla makers who were then obliged to sell at a set price.

Food Costs

The government halted the price guarantees on Jan. 1, 1999, then re-imposed them on Jan. 6 after some merchants raised prices to as high as 7 pesos per kilogram from 3 pesos, stoking fears of inflation.

The surging cost of food products such as tomatoes, tortillas and sugar led consumer prices to rise 4.05 percent in 2006, above the central bank's 2 percent to 4 percent target range. Central Bank Governor Guillermo Ortiz vowed in a Dec. 11 speech to remain ``vigilant'' after failing to anticipate some of the increases.

In reports this week, Merrill Lynch & Co. predicted the central bank will put off interest-rate cuts and JPMorgan Chase & Co. said policy makers may raise rates next month to restrain inflation.

Banco de Mexico will raise its benchmark lending rate by a quarter-point to 7.25 percent at its Feb. 23 meeting, JPMorgan economist Alfredo Thorne wrote in a research note dated Jan. 15. Thorne, who's based in Mexico City, had previously forecast the bank would leave borrowing costs unchanged at 7 percent through this year.

`Paradox'

Policy makers at the central bank last cut borrowing costs in April, ending nine straight months of reductions that brought rates down by 2.75 percentage points from 9.75 percent.

Losing presidential candidate Lopez Obrador, who has declared himself Mexico's ``legitimate'' president, accused Calderon in a news conference Dec. 11 of abandoning the poor by allowing tortilla prices to surge.

After campaigning for higher government spending on social programs, Lopez Obrador lost the July 2 elections by less than 0.6 percentage point.

``Part of the reason Calderon won was that he warned that Lopez Obrador would cause a financial crisis and rising inflation,'' Jose Antonio Crespo, a political analyst at the Center for Economic Research and Teaching in Mexico City, said in a telephone interview. ``The paradox is that it's starting to happen under Calderon.''

To contact the reporter on this story: Patrick Harrington in Mexico City at Pharrington8@bloomberg.net

Last Updated: January 18, 2007 18:54 EST