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.
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.