Mexico’s “super peso” is putting pressure on US remittances

Mexico's "super peso" is putting pressure on US remittances

Written by Lisbeth Diaz and No Torres

TLAXCALA, Mexico (Reuters) – Adriana Sanchez, a mother of two from Mexico, fears the $300 or so her husband sends from the United States a month will not cover the family’s expenses after the peso’s soaring currency and troubling inflation clog her budget.

Mexico now gets nearly $60 billion annually in remittances, mostly from the United States, making it a pillar of household spending in a country that is now one of the largest recipients of remittances worldwide.

But the advent of the phenomenon known as the “super peso” means those dollars don’t go farther than they did.

The peso, buoyed by higher central bank interest rates as well as the transfer of manufacturing capacity to the region from Asia – a trend known as near supply – has gained more than 14% against the dollar this year, outperforming its international peers.

Recently, Sanchez, who lives in downtown Tlaxcala east of Mexico City, said she’s been tightening her strings: She’s not going out with her kids as much, and she’s buying less meat for the family.

“As much as I try to stretch (the money), it’s not enough now,” she said, worried about how to provide for her children in the next school year.

hit low-income families

A year ago, the currency was trading at about 20.40 pesos per dollar. On Friday, it reached a 7 1/2-year high to trade at 16.63 pesos to the dollar.

President Andrés Manuel López Obrador has committed billions of additional dollars in social support programs and urged his citizens to continue sending dollars to Mexico, helping make consumer spending a bastion of growth since the pandemic ended.

But pressure on transfers will put pressure on poor families.

“The purchasing power of remittances has deteriorated due to the appreciation of the peso,” said Carlos Serrano, chief economist at BBVA Mexico. “You can see it hitting lower-income families…in the states that bring in the most remittances.”

The economy grew 3.1% last year, and while a slowdown is expected, hopes are growing that it may come close to matching that performance this year.

Last week’s data showed that growth stalled in May, as the lackluster services sector – which accounts for the bulk of domestic demand – dragged the economy down.

economic inflation

Remittances to Mexico are heading for another record year, although they aren’t growing that fast anymore.

Remittances increased 13.4% last year to $58.5 billion. During January-May, this growth slowed to 10.3%.

The fact that remittances are still rising suggests that some Mexicans are sending more to offset inflation, said Pablo López Sarabia, an economist at the University of Tecnologico de Monterrey.

The general inflation rate was 8.7% last summer and has now slowed to nearly half that level. But core inflation is up by two percentage points, and the central bank has kept interest rates above 11%, putting pressure on borrowers.

Inflation also makes life more difficult for Mexicans in the United States

Manuel, a 42-year-old cleaner in California, said he used to send home $100 a week. But due to the high rent for the room he shares with two others, he can only manage $70 to $80.

“What more could you ask for than taking care of your family,” he said. “But there isn’t always work here, and even less so for those of us who don’t have business papers.”

By contrast, Veronica, a 45-year-old convenience store worker in California, said she used to send her family $100 a week in Tlaxcala, but now sends an extra $40 or so to help them cope.

“They don’t ask for more, but everything happened in Mexico, and they can’t make ends meet anymore,” she said.

Even those who get significantly more money feel the pinch.

Georgina Cárdenas, 34, said the $1,200 she receives per month from her builder husband in the US “was enough for my two children” and other expenses. “But not anymore.”

(Reporting by Lisbeth Diaz and No Torres; Editing by Dave Graham and Aurora Ellis)

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