MXN vs USD — how it affects Mexico

It seems that nothing stops the fall of the peso against the dollar. The value of the USD has sparked distrust, after reaching record levels, as shown this February 9th when the greenback is trading at 19.15 pesos per unit.

How does this affect Mexico and what kind of impact are we receiving? Mexico is now the ravages that this is causing, given that the level of the Mexican inflation has abandoned the minimum historic percentages in December (2.13%), to now settle at 2.61% per year, according to the INEGI (Instituto Nacional de Estadística y Geografía/National Institute of Statistic and Geography).

This monthly increase was mainly due to the rise in fruits, vegetables and domestic gas, these elements caused the monthly inflation of 0.38% more, 0.10% higher than what the analysts had estimated. Specifically, the drastic increases have already been observed in products such as onions, zucchini, tomatoes, bananas and several more.

As noted by the Alto Nivel after strolling around the Central de Abastos de la Ciudad de México (one of the most important markets in Mexico City), different types of public markets and shopping centers.

Central de Abastos and public markets

The USD’s affect seems minimal to the prices of products sold in the Central de Abastos in Mexico City, however, there are exceptions. As stated by the tenants who prefer to remain anonymous, the fruits and vegetables produced within Mexico’s borders have not had significants increases. This, of course, is different with imported products.

For example, apples made in Mexico have a frequent retail price of $20.00 pesos per kilo, which has barely increased in recent weeks, however, the imported apple has a different outcome whose cost has risen by 15%, selling this week at the Central de Abastos for a recurring price of $30.00 pesos per kilo and in the public markets between $40.00 and $45.00 pesos per kilo.

“I could tell you that changes taken place are few, but in those few that happen to be more we see in fact that prices are rising, especially for those who prefer to buy varieties that are not made in Mexico” said a tenant.

In the public markets the situation remains the same, only with increases in foreign products, plus some meat products, said several housewives.

“I can’t tell you an exact figure and if its related to the USD, but I think they are raising prices on meat”, said Marisela Domínguez, who regularly visits the Beethoven market, located in Cuauhtemoc.

Malls and supermarkets

If you think that the few increases on prices seen in the Central de Abastos and some public markets aren’t that significant, the situation changes when walking the malls and supermarkets. The most affected in this regard, according to a price comparison carried out between November and January, are the electronics and textiles, in which the increases are very notable.

“In the last 4-5 months at least on one occasion we had to change prices, I guess is due to the USD”, says a teenager working at a clothes shop.

The same has been said by an employee of a sports shop, who notes that in addition to the clothes, the footwear has drastically risen in price.

Food and personal cleansing products coming from abroad have also been affected by this fact with an increase of the costs, in some cases, up to 15%.

Impossible to maintain prices

Even though the Mexican authorities report that prices will not be affected by the rising USD, Gerardo Cleto López Becerra, President of the Commerce Chamber, Public Services and Tourism (Canacope DF), argues that this is basically impossible, we are not talking about a small increase, but in huge increases that have occurred in a very short period of time.

“From 2015 we began to see in Mexico a significant slip of the Peso vs Dollar, moving up to two or three pesos in the cost effectively itself has led many stores that can not withstand this impact to pass this cost along to customers that can’t afford it.

In an interview with Alto Nivel, the manager claims that this environment has been difficult for companies who, according to their analysis, have had to increase their prices up to 10% on average to cope.

“2015 was a difficult year, but 2016 will be even more challenging. We can not keep thinking that this economic downturn will not affect us, because it is really difficult for companies that live on the imported products with the exchange rate we are currently seeing,” he adds.

From his perspective, 10 products and services are the ones that have been basically altered by this economic downturn.

1. Electronics

More than 90% of these products sold in Mexico are from abroad, so it is undeniable that the situation of the MXN-USD affects its costs. Recently, Apple announced an increase of prices of its Mexican Catalog.

2. Imported Textiles (Mainly Clothing)

As we were able to see on our trip to the shopping centers, most of the shops have had to change their prices to compensate import costs.

3. Footwear

It is a reality that imported products would register an increase, however, in many cases domestic production has also been affected because some foreign brands use imported raw material for manufacturing.

4. Meds/Drugs

Just like the footwear industry, the medicines manufactured in Mexico have also seen the need to increase their prices due to the cost involved in bringing raw materials needed for its creation.

5. Autoparts and Replacement Parts

The automotive industry is closely tied to the USD, and many companies have been able to keep the costs of their industry through promotions, but replacement parts department has had it more complicated.

6. Spare parts for Machinery

This section doesn’t focus on a specific sector, but several; the companies developing their products and that have registered problems in their equipment have had to deal with the exchange rate, due to the majority being from abroad, all the way to their clients.

7. Alcohol (yes… you read right!)

Although Mexico has a huge beer production and very well known worldwide, many alcoholic beverages such as wines, that are from abroad, are affected by the same situation of the USD.

8. Floors and Carpets

Out of all the sectors the most affected are the premium products, such as laminate flooring made in the United States, European tiles or carpets from Asia. The products made in Mexico have few variations.

9. Travel (Mainly flights and packages)

This is perhaps one of the areas most affected by the exchange rate, since they are so closely related to it, prices have risen up to 20%. The involvement has been noticed even with the wide range of services in the market. Most of the quotations are made in USD.

10. Furniture

Furniture is just the same like the floors and carpets just mentioned, premium imported furniture or imported raw material used to create such have been affected as well.

SMEs, the most affected

While many large chain supermarkets and malls have endured in some cases the brunt of the dollar, its a different story with small and medium enterprises (SMEs), who, like Lopez Becerra says, have been the most affected by this situation.

“Unfortunately SMEs have been affected the most, because in many cases, raising their prices is significantly affecting sales; I see a lot of concern in this regards,” he says.

The overview could lead to companies living from imports to disappear, this is a huge problem that will affect the Mexican economy. “He called on the government to support SMEs during this difficult period. We need to facilitate their work in some way so they do not feel the impact of the dollar so drastically”, he concludes.

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