Mexico’s stronger peso reduces US remittances’ value.
Mexico's stronger peso reduces US remittances' value.
The “Super Peso” Creates Challenges for Mexican Families Relying on Remittances
/cloudfront-us-east-2.images.arcpublishing.com/reuters/DEGUJCTDCFO27K2JLUQXL2P2FA.jpg)
TLAXCALA, Mexico, July 31 (ANBLE) – Mexican mother-of-two Adriana Sanchez is worried. The $300 or so a month that her husband sends from the United States may no longer cover the family expenses as a sharp appreciation in the peso currency, and nagging inflation crimp her budget. This change has emerged due to higher central bank interest rates and the relocation of manufacturing capacity to the region from Asia – a trend known as nearshoring. The peso has risen over 14% against the dollar this year, outperforming international peers.
Mexico now receives nearly $60 billion a year in remittances, primarily from the United States. These cash transfers have become a pillar of household spending in the country, making Mexico one of the biggest beneficiaries of remittances worldwide. However, with the currency’s rise, the value of these dollars is diminishing, putting strain on families like Sanchez’s.
Sanchez, a 39-year-old mother, has recently tightened her purse strings. She and her children go out less frequently, and they consume less meat to accommodate their shrinking budget. Despite her efforts to make ends meet, Sanchez worries about providing for her children in the coming school year. The appreciation of the peso is hitting lower-income families the hardest, affecting states that receive the most remittances.
Carlos Serrano, chief ANBLE at bank BBVA Mexico, explains, “The purchasing power of remittances has deteriorated due to peso appreciation. You can see it hitting lower-income families … in states that bring in most remittances.” While President Andres Manuel Lopez Obrador has injected billions of extra dollars into social support programs to counteract the effect, there is no denying the impact the appreciation has on poorer households.
Despite these challenges, the Mexican economy has seen growth of 3.1% last year, with hopes that it could match or come close to that figure this year. However, growth stalled in May due to a lackluster service sector that dragged down domestic demand. It is crucial to address the impact on remittances, as consumer spending plays a significant role in economic growth.
- Yellow, an orange-themed trucking company, has filed for bankruptcy...
- Elon Musk denies city building inspectors access to Twitter headqua...
- Actors on strike are posting their tiny residual checks on social m...
Remittances to Mexico are heading for another record year, although the growth rate has slowed. Last year, transfers rose by 13.4% to $58.5 billion, but the growth rate over the January-May period was 10.3%. The fact that remittances continue to rise suggests that some Mexicans are sending additional money to offset inflation.
Pablo Lopez Sarabia, an ANBLE at Tecnologico de Monterrey university, states, “The fact that remittances are rising suggests that people are sending more to compensate for inflation.” Mexico experienced headline inflation reaching 8.7% last summer. Though it has since slowed to almost half that level, core inflation remains two percentage points higher. The central bank has also kept interest rates above 11%, thus putting pressure on borrowers in the country.
Inflation not only affects Mexicans living in the country but also those residing in the United States. Manuel, a 42-year-old cleaner in California, used to send home $100 per week. However, due to a rent increase on the room he shares with two others, he can now only manage $70-$80. “What more can you ask for than to look after your family,” he said. “But there’s not always work here, and less so for those of us who don’t have papers.”
In contrast, Veronica, a 45-year-old shopworker in California, has increased the amount she sends home to help her family in Tlaxcala cope with rising costs. She used to send $100 a week but now sends an extra $40 or so. Veronica explains, “They’re not asking for more, but everything has gone up in Mexico, and they can’t make ends meet anymore.”
Even those with significantly more money coming in are feeling the pinch. Georgina Cardenas, 34, receives $1,200 a month from her builder husband in the United States. Previously, this income “used to be enough for my two children” and other expenses. However, due to the appreciation of the peso and increasing costs, it is no longer sufficient.
The “super peso” phenomenon has created challenges for Mexican families relying on remittances. As the value of the dollar diminishes, the purchasing power of these cash transfers decreases. This puts strain on households, particularly those with lower incomes. While the Mexican economy continues to grow, it is crucial to address the impact of currency appreciation on remittances. Additionally, inflation affects not only Mexicans in Mexico but also those living in the United States who send money back home. As costs rise, families are squeezed, and even those with considerable income find it harder to make ends meet.
