Last Friday Mexico’s Treasury and Public Finance Secretariat announced the now monthly price increase to gasoline and diesel for the second month in a row.
But unlike the July 1 hike and previous hikes, this one will be the highest increase since 1998. The hike, popularly labeled by the Mexican press as “el gasolinazo,” or the gasoline blow, will be significant to the pockets of consumers.
The Magna (green pump) regular will increase by 0.56 centavos from 13.40 ($0.71) to 13.96 pesos per liter, a 4.2 percent increase.
The Premium (red pump) will be 3.1 percent more expensive passing from 14.47 pesos to 14.81.
Diesel will go up by 0.21 centavos to 13.98 per liter.
Though expected, the question on everyone’s mind is how much the increase will affect inflation. Some calculations predict prices for the month of August to have a 0.21 percent jump with inflation, which will pump the yearly rate up to 3.2 percent.
This may not look like much but the impact is significant, as the government was hoping to close the year with a 2.8 percent inflation rate which is what’s keeping the economy stable.
The fuel gas hikes had become a customary habit for the current administration, but it brought them to a halt last January, restarting them last July.
One thing that’s not known is if the Finance Secretariat will continue with the monthly increase or not. It only just happened last Friday, and the hike was made official starting today.
The reason given by the Finance Secretariat for the hike is that the international reference for fuels is on its way up as reflected by the price of crude oil.
It also explained that Congress approved the hikes to be in tandem with international prices. The goal of the Finance Secretariat is to meet the 2016 budget as programmed and help preserve macroeconomic stability.
Mexico is facing a production crisis in its refineries and forcing Pemex to import over 60 percent of the national supply.
The government’s plan now is to continue until 2018 with controlled prices but the market will be freed and sold under a competition model by filling stations, which will be released by Pemex. Pemex will stop being the sole supplier of gasoline, and the Finance Secretariat will finish imposing prices and let the market float.
At least that’s the plan within President Enrique Peña Nieto’s Energy Reform, which is under stiff questioning because of difficulties implementing it given the volatility of international crude prices in the past two years.
But given the size of this current increase, every economic observer will be watching the behavior of the inflation, as these increases are not market prices, but an added tax imposed by the government, and all economic theories claim that all taxes are inflationary.