Keeping Gas Prices Low Will Cost Mexican Government Dearly

Photo: Erik McLean/Unsplash


Keeping President Andrés Manuel López Obrador’s (AMLO) promise on Thursday, March 3, to not raise gasoline prices as global crude oil prices soar will come with a hefty price tag for his administration, experts warned on Friday, March 4.

Just last January, the fiscal stimulus granted by the government to gasoline consumers represented a cost of between $11 billon and $12 billion, said Director of the Mexican Center for Economic and Budgetary Research (CIEP) Alejandra Macías.

That amount grew even higher in February, when the government subsidy for regular gasoline nearly doubled over the course of just two weeks, she said.

The government’s 100-percent economic stimulus last month was an unprecedented event, said Ricardo Sheffield, head of Mexico’s Federal Consumer Protection Agency (Profeco), who acknowledged that there is great international pressure on fuel prices due to the armed conflict in Ukraine.

Notwithstanding, on Thursday, AMLO reiterated his promise that under his administration, gasoline prices will not rise beyond inflation.

“If AMLO wants to fulfill the promise that there will be no gas hikes, it is going to be very expensive for all of us. We will all pay for that stimulus. It will be not paid by the person who made the promise, but by all Mexicans who are suffering from inflation,” warned Macías.

“Even though the stimulus will be offset by other sources of government revenues, we will all feel the pinch.”

Mexican inflation has been above 7 percent for four months in a row, while regular, or magna, gasoline, which is the most commonly consumed in the country, was sold on average at 20.65 pesos per liter in January. The cost of premium gas was at 22.74 pesos a liter, and diesel was 22.16 pesos a liter.

That is the most expensive price in Mexican history for the three types of fuel, according to the Mexican Energy Regulatory Commission (CRE).

The analysts agreed that the subsidies benefit only the country’s higher classes, since the resources destined to subsidize gasoline are cyphered primarily from government social programs aimed at the poor.

Moreover, financial energy consultant Luis Labardini said that the fiscal stimulus essentially serves as a green light for consumers to use more gasoline.

The government collected taxes for the sum of 380 billion pesos in January, less than its expected income of 396 billion pesos, meaning it has less resources to distribute.

“We should ask ourselves if it is desirable to continue subsidizing gasoline in the face of an adverse external environment and internal budget restrictions,” said Macías.

Mexican oil was sold Friday at $110.02 per barrel, its highest price in nine years.

U.S. crude, on which the price of gasoline purchased from that country depends, sold at $116 per barrel.

Analysts predict that the exchange depreciation, due to the rise in rates in the United States and financial uncertainty, will also make gasoline imports more expensive.

The government has predicted in its annual budget a parity of 20.40 pesos per U.S. dollar by the end of 2022, but the private sector forecasts a level of 21.35 pesos per U.S. dollar, according to the recent survey that the Central Bank of Mexico (Banxico) applied to 38 analysis groups.

In the United States, gasoline prices reached a national average of $3.92 per gallon on Saturday, March 3, up 11 percent since Feb. 23, the day that Russia began invading Ukraine.



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