Economics: Blowback from Botched Price Hike
During the last days of 2016, the federal government announced it would authorize an increase in gasoline and diesel prices that would take effect during the first days of January. We at GEA believe that while the price hike may have been justified by the rise in oil prices and foreign exchange depreciation, the way in which it was implemented is what has sparked the wave of expressions of inconformity throughout most of society.
In an effort to palliate the effects of this error, the federal government rolled out an Agreement for Strengthening the Mexican Economy and Protecting Family Economies. The presentation of these measures made clear that generalities and the repetition of strategies that had previously been advanced do nothing to create greater certainty regarding the ability of the government to take effective actions at a time of mounting risks.
This week’s Economic Outlook analyzes some of the measures that have been proposed to meet objectives for protecting family economies, promoting investments and jobs, and maintaining economic stability.
In other economic news, last week the authorities reported that the 12-month rate of consumer inflation rose in December to 3.36%, the highest level seen in 24 months. The main sources of upside pressures on Mexico’s National Consumer Price Index (NCPI) were the prices of goods and livestock products.
In this regard, we at GEA project that during 2017 the NCPI will maintain its uptrend due to the peso’s continuing depreciation trend relative to the US dollar (which will affect the prices of goods), as well as the sudden and sharp rise in gasoline that the government implemented at the beginning of the year, which could trigger price increases elsewhere in the economy.
At present, pump prices are averaging 15.99 pesos per liter in the case of regular grade gasoline (Magna); Premium is selling for 17.79 a liter and diesel is going for 17.05/lt. On average, these fuel prices were raised 24% relative to December levels.
According to the National Confederation of Commerce, Services and Tourism (Concanaco) of Mexico City, the effects of higher gasoline prices have already begun to show up in prices such as those for tomatoes, beans and milk, which experienced generalized increases during the first days of January.
In light of these developments, we at GEA estimate that the rate of inflation will end 2017 at 4.7%.
Other economic news was similarly adverse, including a report on industrial output for November that snapped a four-month streak of negative numbers but showed a mere 0.3% uptick year on year. While both the construction (+2.7% yoy) and manufacturing (+2.1%) sectors continued to show growth, those expansions were largely cancelled out by the continuing plunge in mining and drilling sector activity (-9.0%).
Inegi reported that its index of Gross Fixed Investment inched 0.2% higher in October compared to the same month of 2015 as a 0.9% rise in construction investment was largely offset by a 0.7% decrease in machinery and equipment investment.
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