Mexico City, May 14 - The price of tortillas, a political hot button in Mexico where the corn pancakes are eaten more readily than bread, is expected to jump about 18 percent by June on rising costs for fuel and corn, a major industry group said on Wednesday.
Average tortilla prices should rise to 10 pesos ($0.95) per kilo in June from 8.5 pesos per kilo now, Rafael Ortega, who heads the National Chamber for the Tortilla and Dough Industry, told Reuters. Ortega's organization groups together about 40 percent of the country's tortilla producers.
The chamber's forecast, together with other projections of even sharper increases that have been published in Mexican newspapers, contradicted recent statements from major retailers that tortilla prices will not rise sharply this year.
Food costs are a serious concern for the poor in Mexico, where the minimum wage is around $5 a day. In the past, the government has made deals with retailers and producers to control tortilla costs.
Investors seized on the forecasts as more evidence that the price increases will fuel higher inflation and might lead the central bank to raise interest rates this year.
Yields on Mexican interest rate futures surged on Wednesday, showing investors had significantly increased bets of a rate hike sometime this year.
The yield on Mexico's benchmark 10-year peso bond rose 7 basis points to bid 8.10 percent.
Barclays Capital Research said in a note that higher tortilla prices would lead to inflation problems.
"This increase would have a significant impact on domestic inflation, probably pushing it toward, or even above, the ceiling of the central bank's 4.5 percent to 5.0 percent inflation forecast range for the next couple of quarters," it said.
Ortega said the average price for a tonne of milled corn has jumped to 3,650 pesos from 3,000 pesos in January.
"It is just supply and demand," Ortega said.
"NO OPTION"
Another industry group said tortilla prices would rise gradually to 9 pesos ($0.85).
"Our members have no option, or they raise prices for tortillas or close their businesses," Lorenzo Mejia, leader of the National Association of Industrial Millers and Tortilla Outlets, told local radio.
In Mexico City, tortilla store staff said they also had heard prices for the staple would rise due to dough, fuel and power costs.
"Everything is on the way up," said Juan Manuel Aguilar, who helps run a tortilla store in a working-class neighborhood of the capital.
Global grain prices have surged on higher demand from countries like China, scant harvests in many countries and growing demand for grain from the biofuel industry.
In some parts of the world, soaring prices for basic food staples such as rice have sparked street protests and riots.
($1 = 10.487 pesos)