Last updateFri, 07 Dec 2018 11am

High inflation, tortilla hikes, weak peso obscure economic vista

In an election year, the specter of rising prices is never good news for the ruling party.

As the year turned, with inflation running at around seven percent – the highest for 16 years – the National Tortilla Producers Union warned of hikes in Mexico’s basic staple of up to 20 percent.

tortThe cost of a kilogram of tortillas is expected to rise between 1.50 and three pesos in the coming days.

Anticipated electricity, natural gas and gasoline hikes in 2018 will trigger hikes, the union said.

A government spokesperson denounced the need for such hikes, saying the market conditions for price increases do not exist. Last year, as part of its widespread energy reform program, the Mexican government relinquished control of gasoline prices, allowing the cost of fuel to be set according to market forces. However, new taxes scheduled to take effect in 2018 will push gasoline costs slightly higher.

The cost of natural gas and electricity also rose significantly in 2017, the corn millers and tortilla producers argue.

Meanwhile, the Mexican peso limped wearily toward the year’s end, closing at a nine-month low against the dollar on December 26. Much of the negativity was a result of concerns at the future of the North American Free Trade Agreement (Nafta) negotiations, and the prospect of leftist Andres Manuel Lopez Obrador winning the Mexican presidency.

Nonetheless, forecasters tracked by Bloomberg expect the peso to improve significantly in the first half of 2018, and could even end the year at around 17 to the dollar.  However, Bloomberg’s assessment is based on Mexico’s continuing “macroeconomic stability” and “implementation of economic reforms.“

With the July 1 election less than six months away,  President Enrique Peña Nieto will be keen to limit any negative news about the economy.  He will also be hoping that the Trump administration – perhaps fearful of a Lopez Obrador victory – does him a huge favor by deciding not to pull out of Nafta.

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