The extra income that Mexico, an oil producer and exporter, will gain from higher crude prices will be used to pay for a subsidy to keep domestic gasoline prices down, Mexican Deputy Finance Minister Gabriel Yorio told Reuters on Friday.
Without the subsidy, annual inflation, which hit 7.29% in the first half of March, would rise two percentage points to above 9% within four months, Yorio said in an interview at his office in downtown Mexico City.
“I think that practically all the surplus that will be generated by higher prices will also be reflected in the cost of gasoline … so we’re literally going have to use the surplus to finance the additional subsidies,” said Yorio.
The Bank of Mexico has hiked the key interest rate seven monetary policy meetings in a row to try to rein in inflation. The central bank’s target is 3% inflation with a one percentage point tolerance range above and below that.
“What we have calculated is that over a period of four months this measure avoids two percentage points of inflation. In other words, if over these four months annual inflation is around 7% more or less, this prevents it from rising to 9%,” he said.
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