Two of Mexico’s Biggest Bugbears Surge Again

Two of Mexico’s Biggest Bugbears Surge Again from Wolf Street

Footloose hot money that has flooded Mexico can quickly dry up.

By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.

After several consecutive months of predominantly positive developments, including the governing Institutional Revolutionary Party’s recent electoral victory in its key state, Estado de Mexico, the outlook for Mexico’s economy is no longer negative; it’s stable. That’s according to rating agencies, Fitch and Standard’s & Poor.

It’s a remarkable turnaround for a country that began the year in the most ominous fashion, with a crumbling currency, surging inflation and a popular revolt against gasoline price hikes.

But the peso, after plumbing to new depths of 22 pesos to the dollar on January 19, has clawed its way back to 17.8 pesos to the dollar– a 22% surge in just seven months.

Despite its fortifying currency, Mexico’s historic bugbear of inflation continues to grow. Consumer prices, as measured by the national consumer price index, soared 6.44% in July compared to a year ago. It was the sharpest annual inflation rate increase since December 2008. It has now accelerated for the thirteenth month in a row.

This is a big problem for regular Mexicans whose meager wages are failing to keep up. It’s also a big worry for the government and its financial and corporate backers, since widespread public resentment is likely to fuel support for the strongly leftist party Morena whose leader Andrés Manuel López Obrador, a former Mexico City mayor, came within 250,000 votes of winning the 2006 elections.

The government’s reelection prospects rest on two rather flimsy hopes: that the surge of the peso will hang on until the elections next summer, and that it will help curtail inflation. As Wolf Richter pointed out, given the peso’s long history of relentlessly zigzagging lower in fits and starts against the dollar, it’s not exactly a sure bet.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.