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Electrifying Shock

The most important warning Coparmex is making is that they no longer support the administration's low inflation policy and that they will add the cost to consumers
By The News · 03 of November 2016 08:58:45
The CFE will increase electricity prices to several sectors, CULIACÁN, SINALOA, 05JULIO2016.- La Comisión Federal de Electricidad (CFE) anunció aumentos en las tarifas para el sector industrial entre el 2 y 5 por ciento; en el sector comercial, entre el 5 y 7 por ciento y para el uso doméstico de alto consumo es de 6.8 por ciento en comparación con el mismo mes del año pasado. Para el de uso doméstico de bajo consumo se mantuvo sin incremento con respecto a años anteriores.FOTO: RASHIDE FRÍAS /CUARTOSCURO.COM, photo: Cuartoscuro/Rashide Frías

Certainly in the midst of that strange mixture of Halloween and Day of the Dead in Mexico, about the only thing that went almost unnoticed mostly because the Federal Electricity Commission (CFE) announced it on Saturday, was the latest two to seven percent hike in electricity rates.

The new increase, said a CFE press release Saturday, was because the main energy source — fuel oil and natural gas — to produce electricity went up again, hence the CFE said it was “forced” to increase the price to three sectors of the tax paying economy, industry, business and high energy consumers. There were two immediate reactions to the new boost. One was economic and the other political.

On the economic side, the Employers Federation of Mexico (Coparmex), which has 36,000 business and industries as members, loudly objected to the new increase in energy prices as the CFE was fresh from raising them last August and now they are getting hit again.

Coparmex President Jesús Padilla Zenteno, in a press release, said that the boost in prices of fuels (diesel went up too) and electricity is a dead weight imposed to business which does not generate a good business ambiance as it diminishes the possibility of attracting new national and foreign investment and that it results in a stagnant national economy.

A third sector affected by the rise in energy prices is those homes that use air conditioning and heating, mostly located along the northern Mexico border with the United States.

Politically, President Enrique Peña Nieto is being criticized from all sides as one of his main campaign promises in 2012 was pushing for his Energy Reform under which “the prices of fuels and electricity will be reduced, people will pay less.”

News site Animal Político reported that that during the Peña Nieto Administration the reality has been the exact opposite as Petróleos de México (Pemex) and the CFE monopolies continue to increase prices. Coparmex’s Padilla even complains that “faced with the government promises to reduce the price of fuels and electricity rates, we remind everyone that this is the fifth hike in costs imposed upon Mexicans since July and the industrial and business sectors are the most affected by them.”

Padilla also questioned Peña Nieto’s previous promises when pushing hard for the Energy Reform back in 2013, “there will be thousands of new jobs with improved wages” and Padilla also recalled that EPN said “the price of electricity and gas will go down.”

Padilla said in his press release that jobs are being lost as Pemex has laid-off nearly 40,000 workers and vacancies left behind by retirees and pensioned people are not being refilled. “Something similar is happening at CFE,” he added.

The exact increase for industries will be from 5.6 to 7.2 percent while for business is 3.3 to 5 percent which represents an accumulated increase from last November 2015 of 17 and 23 percent, respectively, for industry and businesses. “This is 25 and 30 percent more than a year ago,” Padilla says.

Although in the past both industries and businesses have been absorbing the increases without batting an eye and not increasing product prices to protect the economy against an inflationary bubble, this new increase will definitely have a negative effect.

“We consider it highly unlikely that the nation’s productive apparatus can withstand this constant upsurge in prices without damaging the economy of consumers. We need to sustain the principles of a market oriented economy with social responsibility,” he said.

The increase comes at a moment when President Peña Nieto has shown sensitivity to criticism claiming that administration critics “only see big things, not the little advances” but surely when industrialists and commerce at-large begin getting the new electricity bills next December, they’ll be hurting in their accounting.

But the most important warning Coparmex is making is that they no longer support the administration’s low inflation policy and that they will add the cost to consumers.

This is definitely bad news for 2017 as there is a no-growth forecast of the gross domestic product and if prices are hiked as Coparmex says they will be, there will surely be an ugly phenomena call “stagflation” — inflation without growth — beleaguering the Mexican economic outlook.