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MEXICANS STRUGGLE THROUGH PESO CRISIS DEVALUATION HURTS WORKING AND MIDDLE CLASS

By Published on .

MEXICO CITY-Rose Maria Santillan, a 47-year-old hospital cook, and her daughter Beatriz Pantoja Santillan are making their Saturday morning rounds of Mexican retail chains-scouring for the cheapest prices on powdered milk, cereal and shampoo.

Like many other middle- and working-class Mexicans, Ms. San- tillan represents a new breed of comparison shoppers caught in the hard reality of the new peso devaluation.

Once, consumers like Ms. Santillan plucked foreign brands off the shelf without checking the price.

Since the peso's plunge, prices in the past month alone have jumped 10% on Mexican-made goods and soared 40% on imports. While the U.S. rescue plan for Mexico has stabilized financial markets, economists still warn that the outlook, for this year at least, is grim.

And prices could rise even further, prompting Mexicans to repeat an increasingly familiar phrase: "No te alcanza," meaning "You can't make ends meet anymore."

"People only want to buy absolute necessities now," said Patricia Landazury, 35, a receptionist at a law firm. Ms. Landazury's husband works at a cousin's business to tide him over after his silk flower import business collapsed.

Moving furthest out of reach for the middle class are big-ticket goods. Bank economist Grocio Soldevilla, 32, and his wife, Rosemary Estrada, 33, had hoped to buy an apartment this year. But soaring interest rates caused the couple to put those plans on hold.

Only a month after the Mexican government was forced to let the peso go into free-fall, the results are already on display at the local supermarket. And Mexicans are trying to cope.

Ms. Estrada said the couple will substitute local food products for the imports they were buying. "We used to buy imported milk and rice because it was cheaper and of better quality," she said. "Now we'll just look at prices more carefully."

High price or not, one import she won't give up so easily is I Can't Believe It's Not Butter, at the premium price of 7.05 pesos for a one-pound carton.

Bargain shopper Ms. Pantoja said she's had to stop buying imported deodorants and lotions under the Adidas and Jovan brand names because their prices spiraled 40%. She's also noticed that the imported toys she buys for her 6-year-old have gone up 30% to 40%.

Not everything has risen out of reach. "We took my daughter to McDonald's recently and we didn't notice any difference," she said. But that may have been before McDonald's Mexican subsidiary raised its prices an average 27%.

While the new peso means bad news for multinationals exporting to Mexico, it's an opportunity for local marketers.

"The Mexican companies who survived the market opening [beginning in 1986] ... will now be able to steal from the imports," said Daniel Caraco, associate director of consulting firm Arthur D. Little Mexicana.

But prices are increasing even on Mexican-made products as marketers pass on the higher cost of credit and imported parts. The government has made non-binding agreements with industry groups to limit price increases, but there's no way to enforce them.

Despite the government's announcement that the consumer price index rose just 2.3% in the first two weeks of January, it's clear to most consumers that prices are rising faster than that.

"Even on national products, the price has gone up a peso here, a

peso there, and when you get to the checkout counter, it adds up to a lot," said Ms. Landazury.

So how does she cope? "Before, I might have bought three packs of Quaker cereal at a time; now I'll just buy one."

"There just isn't much money anymore," said Olivia Alba, 30, shopping with her husband and two boys. "We'll have to stick to just the basics," including, she said, purchasing fewer of the imported household cleaners she prefers.

But worse times could be around the corner for middle-class Mexicans, as high interest rates aimed at squeezing inflation out of the economy and attracting foreign capital have potentially more serious effects. With domestic consumer demand expected to drop more than 12% this year, many companies are cutting costs-and laying off.

"I don't see where these people are going to find jobs," said Beth Finneran, a retail analyst at Interacciones, a brokerage.

Responding to forecasts that demand for automobiles could contract as much as 40% this year, Nissan Mexicana said it was planning to cut 1,000 workers from its work force. Mexican TV behemoth Televisa has already pared its work force by more than 6%, or more than 1,500 workers.

"There's lots of nervousness. People don't know if they're going to have work, and even if they do, they'll see a contraction in their salaries," said Mr. Caraco. "They won't buy anything that's not a necessity."

Marketers will be forced to raise prices to a point where they won't lose market share but enough to meet their increased costs, said Mr. Caraco. "They'll sacrifice some of their margins and hope that things get better in six months."

But for consumers recovering from new peso shock, it will take longer than that.

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