Mexico’s government has announced the biggest increases in petrol prices in almost two decades in a move that risks a backlash against its efforts to liberalise the country’s energy market.
The average prices across Mexico in January will be 15.99 pesos for a litre of regular petrol, 17.79 pesos for premium and 17.05 pesos for diesel, representing increases of 14.2 per cent, 20.1 per cent and 16.5 per cent, respectively, compared to December 2016. The new prices come into effect on January 1 and will vary by region, according to transport costs and other logistical fees.
The maximum prices will be adjusted more frequently than in 2016 as part of a historic liberalisation programme that will allow organisations other than the state-owned company Pemex to import and sell in Mexico.
The move to a competitive model brings an end to nearly 80 years of government-controlled pricing. Yet higher prices are going to be a big shock for Mexican consumers, who are already bracing for 2017 to be a rough year economically.
The Mexican peso tumbled more than 15 per cent against the US dollar in 2016, adding pressure to petrol prices since Mexico imports more than half of its petrol, most of that from the US.
In November, HSBC and Santander reduced their growth forecast for Mexico in 2017 to 1.7 per cent on the belief that Donald Trump’s presidency may hurt consumer confidence and investment in the country, given his vow to renegotiate trade ties with the US. HSBC had previously predicted a 2.3 per cent rate, while Santander had a 2.2 per cent expansion.
Gasoline price rises are likely to trigger further inflation, adding pressure on the central bank to raise interest rates. Inflation was already at a near two-year high of 3.3 per cent last month.
Higher prices at the pump could also undermine public confidence in the historic energy overhaul that Mexican President Enrique Peña Nieto announced in 2013. The energy reform itself is already perceived negatively by 56 per cent of Mexicans, according to Parametría, a polling group.
Mexico’s finance ministry announced that gas prices will be adjusted on a twice-weekly basis in the first two weeks of February, and on a daily basis from February 18, in an effort to mimic the free market.
In late March, gasoline price controls will be discarded in the northern border states of Sonora and Baja California, where competition among petrol stations is already more common. Other areas will follow later in the year, including Mexico City in November.
Critics have said that certain regions were ill-equipped to deal with the liberalisation programme. A lack of petrol stations, particularly in Mexico’s poorer southern states could trigger monopolistic practices.
There are also concerns about the regional price differences.
“This system provides incentives to trade across regions,” said Dwight Dyer, a freelance energy consultant. “There may be profits for companies with stations across different states. The government is posing itself a real challenge for policing this.”
Mexican authorities say they are confident the liberalisation effort will ultimately benefit motorists, as petrol stations compete for customers.
Venezuela, which has slid in to economic and social chaos, has been held up as a counter example of what happens to governments that ignore international energy prices.
“We could do nothing and leave prices alone — if we wanted to be like Venezuela,” said one senior Mexican official.
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