Happy Hour Happier as Mexico's Lime Prices Plummet

Falling lime prices in Mexico helped reduce the inflation rate in April to its lowest since October after a jump in prices earlier in the year pushed up the cost of margaritas in bars from Mexico City to New York.

“Margarita drinkers should relax now and order a second round,” Marco Oviedo, chief Mexico economist at Barclays Plc, said by telephone from Mexico City. Limes “provided a strong push to maintain the downward trend in inflation.”

The price of the fruit plunged 39 percent in April from March, accounting for more than half of the monthly drop in national consumer prices and helping annual inflation slow to 3.5 percent, Mexico’s statistics agency reported today. Limes had risen 41 percent in March and 68 percent in February and were the biggest catalyst for inflation in both months.

Mexico, which supplies about 97 percent of the fruit in the U.S., saw lime prices surge after disease and heavy rains limited supply and some growers banded together to keep rates high, sparking a government probe into price fixing. As supply shortages wane, lime costs fell more than expected and provided a respite to inflation that had reached an eight-month high in January, according to Barclays’s Oviedo.

Mexico’s consumer protection agency filed a complaint with the attorney general’s office last month against lime growers in Michoacan state for allegedly fixing prices and fanning inflation, Lorena Martinez, who heads the agency, said in an April 4 interview. Before then, lime prices had risen 283 percent between November and March, according to the statistics agency.

U.S. Prices

In the U.S., prices for limes were up 81 percent from a year earlier and more than double the cost in mid-January, U.S. Department of Agriculture data as of April 4 show.

Mexico’s inflation has eased each month after reaching 4.48 percent in January, when new taxes on everything from dog food to chewing gum took effect. Economists have been paring their forecasts for consumer price increases this year after the levies failed to trigger an extended surge in prices, with a central bank poll published yesterday showing the lowest estimate for 2014 annual inflation in six months.

Consumer prices in April slid 0.19 percent from the previous month, the national statistics agency said, compared with the 0.13 percent drop forecast by 23 analysts in a Bloomberg survey.

‘Remarkably Well’

“Inflation has behaved remarkably well after the increase in taxes in January,” Carlos Capistran, the chief Mexico economist at Bank of America Corp., said in an e-mailed response to questions. Today’s report “increases downside risks for our end-of-year forecast of 3.9 percent.”

The peso strengthened 0.1 percent to 12.9474 at today’s close in Mexico City after appreciating 0.6 percent in the year through yesterday. The yield on inflation-linked bonds due in June 2016 fell one basis point to 1.03 percent.

Mexico on Jan. 1 implemented a new tax on sugary drinks of 1 peso per liter, an 8 percent duty on junk food and a 7.5 percent levy on mining profits, among other taxes.

Economists expect inflation to end the year at 3.85 percent, according to yesterday’s central bank poll, down from 3.92 percent in the previous survey. The analysts also lowered their growth outlook, to 3.01 percent from 3.4 percent at the start of the year.

Retail sales unexpectedly contracted in February, signaling Latin America’s second-biggest economy was struggling to recover in the first quarter.

Central bank Governor Agustin Carstens said April 4 he saw “encouraging” signs of an economic rebound after a slow start to the year.

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net

To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net Randall Woods, Philip Sanders

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