Two of Mexico’s Biggest Bugbears Surge Again

Footloose hot money that has flooded Mexico can quickly dry up.

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.

It’s a remarkable turnaround for a country that began the year in the most ominous fashion, with a crumbling currency, surging inflation and a popular revolt against gasoline price hikes.

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

Continue reading the article at WOLF STREET

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