Inflation Flattens in Mexico; Country Posts First Trade Deficit of 2011

| Aug. 26, 2011 |

Published by Minyanville

While much of Latin America—most notably Brazil -- battles inflation, Mexico’s prices went up just 0.09% in the first half of this month, with annual inflation running at 3.49%. Both figures were much lower than analysts’ predictions, and have led the country’s Central Bank to maintain interest rates at 4.5%.

However, the bank has said that it is willing to consider cutting the benchmark rate if it seems to tight, in light of global and domestic markets. “If the performance of the national economy and international financial markets results in an unnecessary tightening of monetary policy, the Governing Board will reflect on the appropriateness of adjusting it,” the bank said in a statement.

Mexico has posted a trade deficit for the first time this year, at $1.18 billion for the month of July. The news comes after six straight months of surpluses and is thanks to a reduction in exports of petroleum as well as stronger import figures. The accumulated surplus for the first seven months of 2011 is now $2.16 billion.

Thanks to lesser exports, state oil firm Pemex took in $3.98 billion last month compared to June’s $4.42 billion, despite higher oil prices. The auto industry slipped in July too, exporting $6.19 billion compared to $6.88 billion the previous month. Both oil and motor vehicles have been the prime forces behind the year’s trade surplus.

Drug Violence

An attack on a Mexican casino in Monterrey—home of Cemex (CX) and General Electric (GE), as well as many of Mexico's and the United States’ biggest companies—has left at least 53 dead, as gunmen spread gasoline before lighting the building, trapping staff and customers inside. Criminal gangs often insist upon extortion money from businesses in the region. It is thought that management at the Casino Royale were unwilling to pay.

Extortion is big business for the drug cartels. Many shops and businesses are burnt out across the cartels’ heartlands, such as Ciudad Juárez on the northern border with the United States. This attack in such a wealthy region will do nothing to keep foreign business there.

President Felipe Calderón has called those responsible, “true terrorists.” In a bid to boost Mexico’s tourism industry—constantly trying to distance itself from the drug violence—Calderón is to appear as an adventure tour guide in a series of television programs aimed at the US market next month.

The president is under tremendous pressure from opponents of his war on drugs, which has led to 40,000 deaths since he came to power in December 2006. In the programs, Calderón will descend into the 1,000-foot Sotano de las Golondrinas cavern, clad in an Indiana Jones hat, go scuba diving in a sinkhole lake as well as paddle downriver in the jungles of Chiapas.

The US State Department has issued warnings to its citizens about visiting Mexico. Foreign tourism fell 2% in the first six months of this year, compared to the same period in 2010. A number of cruise lines have canceled port calls in Mexico as the US market steers clear from the apparently dangerous country.

Calderón himself may have other things on his mind in this media-friendly venture. Campaigning for presidential elections will begin shortly and, while he is unable to stand himself, the images are likely to give his party a big boost.

“We see this as a promotion of Felipe Calderón's own image, for the benefit of his own party, rather than an institutional image of the country as a tourism destination,” Mario di Costanzo, a congressman in the country’s Labor Party, told Associated Press.

The Mexican presidency is traditionally solemn and Calderón has done his best to change that, wearing military uniforms and saluting, like many of Latin America’s more maverick leaders such as Venezuela’s Hugo Chávez.

News of an Aeromexico pilot’s detention on suspicion of attempting to smuggle cocaine into Spain will do nothing to help Mexico’s international reputation. It is the second time in nine months that the airline’s pilots have been arrested in Madrid on the same charges.

However, investment continues to come in. Mexico received $10.6 billion in foreign direct investment in the first six months of this year, of which $3.37 billion was new investment. The money went into manufacturing, financial services and commerce and mainly came from the United States, with 74% of the total. Mexico is expected to receive up to $20 billion in total foreign investment this year.

Slim Antics

World’s richest man, Mexican Carlos Slim has increased his stake in the New York Times (NYT) as well as luxury retailer Saks (SKS).

Slim now owns 7.3% of the newspaper, up from his 6.9% share thanks to his purchase of 553,000 Class A shares at between $6.83 and $7.09 per share. The 71-year-old also now has a 16% stake in the upmarket department store. Shares in both companies rose around 4% earlier this week when the news was announced.