Farewell Festivities, Hello ‘Cuesta de Eñero’

By Karla Ortiz

We hope you’ve enjoyed the holidays with your loved ones and that you’ve saved for the future, because get ready: according to experts, the financial expectations for 2018 for everyday people are not very favorable and look economically complicated.

Generally speaking, we Mexicans are very good when we want spend money, especially in the month of December, when expenses be it for buñuelos or preparing punch, dinner, tamales, gifts, piñatas, or baggies with sweets. December seems to exist solely to spend the Christmas bonus. Then in January, we are affected by the rise in prices. Except that, the price increases began early this year, in December, with the increase in the price of gas. But we didn’t even realize it because we were too busy taking care of the tamale pot.

This famous rise in prices is known in Mexico as the “January Slope,” the nightmare that deprives all Mexicans of sleep.

“The department stores take advantage of the fact that Mexicans do not have a culture of saving money, and start with their 2×1 promotions, [their] 60 and 70 percent discounts or ‘buy today and pay until March’ [deals]. In reality, the spending begins in November with the Buen Fin or ‘Black Friday,’ and doesn’t stop until February or March, which is when you finish paying for property [tax] and the car excise tax. Those of us who have credit cards don’t finish paying [our debt] until August or September,” says accountant Silvia Mendoza.

On the other hand, Paolo Bizzotto, from the Cámara Nacional de la Industria de Restaurantes y Alimentos Condimentados (National Chamber of the Industry of Restaurants and Seasoned Foods—CANIRAC), says, “We must maintain logic about the entire economic context of this country, because the truth is that you can’t raise a worker’s minimum wage by eight pesos when the price of gasoline is going to shoot up by 30 or 50.”

Bizzotto is referring to last November, when the Comisión Nacional de los Salarios Mínimos (National Commission on Minimum Wages-CONSAMI) announced an increase in the minimum wage of 8.32 pesos, which took effect in the month of December, raising the minimum wage to 88.36 pesos per day. President Enrique Peña Nieto took advantage of the opportunity, via Twitter, to remind Mexicans that at the beginning of his six-year term, the minimum wage was 60 pesos per day, and that thanks to his government, the minimum wage has recovered 20 percent in “real terms.”

Other factors quickly cut into those increases to the minimum wage, though. Let’s not forget the liberation of gasoline prices and the arrival of gasoline companies from the private sector. “The fact that there is a freeing of prices, especially in gasoline, is harmful; it cannot be that the country that exports oil has the most expensive gasoline; it is an incongruity. Logically, prices are going to go up, food will go up, everything is going to go up,” says Bizzotto.

Mendoza agrees. “The fact that gasoline goes up is a very important trigger, because everything is handled by means of gasoline. Everything that comes to us has been transported from one end of the country to the other, so the fact that [gasoline] goes up destabilizes us in [achieving] the basic basket, because it is obvious that if you increase gasoline, there will be an increase in all those basic products. At the national level, it affects us very much that gasoline goes up, because it then automatically raises everything else.”

The “basic basket” Mendoza refers to is La Canasta Básica Alimentaria (CBA), a calculation established by the Consejo Nacional de Evaluación de la Política de Desarrollo Social (National Council for the Evaluation of Social Development Policy-CONEVAL), of the minimum amount of various inexpensive staple foods needed to meet the basic nutritional needs of the average Mexican household.

Mendoza and Bizzotto are not the only ones saying that an eight-peso rise in the minimum wage is not enough to weather these increases. Confederación Patronal de la República Mexicana (The Employers Confederation of the Mexican Republic-COPARMEX) recently proposed an increase of the minimum wage to 95.24 pesos per day so that low-income families could cover the welfare line and meet the expenses of the basic basket.

NAFTA’s Ricochet Effect on Prices

Inflation in the prices of exported products depends on NAFTA negotiations. After five rounds of meetings and negotiations, COPARMEX anticipates that this bitter chapter in Mexico’s history will finally close in January, after the sixth meeting scheduled to be held in Montreal January 23-28, according to a statement issued through its official website. However, in a report published by Expansión newspaper, four analysts put forward different scenarios for the end of NAFTA.

The first possible scenario is that negotiations are postponed until after the US midterm elections next November. If this happens, trade between the three countries would continue to be governed by the current version of NAFTA, according to Juan Francisco Torres Landa, partner in the Mexican office of the legal firm, Hogan Lovells.

Another possibility would be that, in accordance with the main objective of the current US president Donald Trump, the US opts out of the agreement. Trump’s goal, however, would not take effect for six months, due to NAFTA Article 2205, says Felipe Miguel González, president of the Confederación Latinoamericana de Agentes Aduanales, A.C. (Latin American Confederation of Customs Agents – CLAA).

A third scenario could be that rigid US proposals become part of a strategy to force México to be the one to opt out of the treaty, according to Gabriela Siller, director of Economic Analysis at the Banco Base financial group.

The fourth and final scenario is that all three countries agree to proceed with the goal of completing NAFTA negotiations. If that happens, the effects of a new version of NAFTA would apply in 2019 or 2020, depending on how fast the new version is ratified by the congresses of the three partner countries, says Landa.

All these international problems lead the federal government to dictate an increase in the prices of services such as gas, electricity, gasoline, and water, in addition to the required payment of the property tax and/or vehicle excise tax.

“In January comes the property [tax]. Every person who owns a house is obliged to pay a tax for the fact of owning a real estate, and it is assumed that the money to be collected with that tax is for public expenses,” says Mendoza. “Another payment is that of vehicle excise tax; all people who own vehicles, especially new ones, have to pay for an endorsement [of their vehicle], which is used for the same purpose: public expenses, hospitals, street lighting, roads, streets, et cetera.”

Guanajuato Predicted as Economic Growth Leader in 2018

It is likely that 2018 will follow the general increase in prices, the most affected being gas, as its price is governed by the price of the US dollar, which continues to rise every day. The exchange value of 1 US dollar is predicted to reach 20 pesos in January, according to a report from the newspaper Zócalo.

Given this unfavorable scenario for the country, CitiBanamex proposed an analysis of growth in which it found that six states of the republic will lead the economic growth of the entire nation. Proudly, Guanajuato is among those six, making it a key player in the economic development of the country. The total list includes Aguascalientes, with an advance of 5.6 percent; Querétaro, with an advance of 4.9 percent; Quintana Roo, with a growth of 4.5 percent; Guanajuato, which will report a growth of 4.3 percent; and Baja California Sur and San Luis Potosi, both of which will reach 4.2 percent, according to the financial institution. In contrast, Campeche, Tabasco, Veracruz, and Tamaulipas will continue as the entities with the lowest economic performance, due to their low oil production, said Guillermina Rodriguez, an economist at CitiBanamex.

Despite the gloomy predictions of increased prices in 2018, CitiBanamex estimates, in a press release on its official website, that in the coming year, the Mexican economy will grow 2.4 percent overall. Nineteen entities are predicted to report above-average growth.

However, on an everyday level, prices are still expected to rise, making paying the bills even harder than last year. Many of the experts, including Bizzotto and Mendoza, recommend that people use their yearly job bonus this month to plan ahead for their expenses and that they don’t overconsume unnecessary items. They also advise people to allocate at least a percentage of their earnings to paying debts and taxes in January, to get themselves out of debt sooner rather than later.

 

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