May 17, 2023·edited May 17, 2023Liked by Sarah DeVries
This is indeed a worry. I bought a large house in CDMX in March of 22. Fortunately I bought most of the pesos for that purchase after Thanksgiving of '21, and got what even then was a good exchange rate. Now? It was amazing. One of my fears of buying here was that I'd purchase and then the exchange rate would immediately take a dump. While I'm delighted that that hasn't happened, I do have to confess to mixed emotions. The house itself (which I recently named "Vicios Ocultos") is in need of extensive remodeling. I have about a half-million pesos bought at the same exchange rate I got last year, but I'm using it fast. But alas, I still have considerable work ahead, and I'll have to buy more pesos at (gulp!) maybe 17.5.
As for inflation, there's what the Fed was calling "transitory," mostly due to the giant supply chain backup. That's over. And then there are what are called "base effects." This means that, for example, if gasoline goes from $3 to $5/gallon, there's inflation along the way, but once it stops going up, there's no more inflation, but you aren't paying any less for gasoline either. In terms of energy, which affects a large portion of inflation, we are now well into base effects, and oil has not gone to the moon (despite many such a prediction). There are other base effects happening too. But services are still rising briskly. All of this refers to USA inflation.
In Mexico, the inflation has been less for several reasons. One, the consumption basket weighting is different. Two, for internationally-traded goods (like energy, manufactured goods, etc.) Mexico's strong peso has helped to shield the blow. Third we didn't seem to suffer from bird flu like in the USA, so egg prices, while up, haven't gone through the roof. (Or taken off, if you want a bad pun.)
As for the future of the peso, I have to say that I'm a bit confused myself. I spent a career in financial markets, pretty much consumer-related equities (stocks), so I'm no expert in foreign exchange. I did a little digging myself, but didn't come up with any satisfying explanations. Yes, AMLO has been fiscally conservative. Supposedly. But then looking at government deficits, they haven't really changed. Nor has Mexico's trade balance (still mostly in deficit). But there's one factor that's hugely in Mexico's favor, though this doesn't move all that fast: national debt. Mexico's government debt-to-gdp ratio is well below that of the "developed" world. And that developed world, led by the USA and Japan are piling on debt at truly unsustainable rates. I sometimes wonder if Mexico couldn't be something of a refuge in a first-world debt crisis. As that day draws nearer, investors in first world currencies are likely thinking the same.
And if that's the reason, then don't expect any radical depreciation of the peso any time soon.
This is indeed a worry. I bought a large house in CDMX in March of 22. Fortunately I bought most of the pesos for that purchase after Thanksgiving of '21, and got what even then was a good exchange rate. Now? It was amazing. One of my fears of buying here was that I'd purchase and then the exchange rate would immediately take a dump. While I'm delighted that that hasn't happened, I do have to confess to mixed emotions. The house itself (which I recently named "Vicios Ocultos") is in need of extensive remodeling. I have about a half-million pesos bought at the same exchange rate I got last year, but I'm using it fast. But alas, I still have considerable work ahead, and I'll have to buy more pesos at (gulp!) maybe 17.5.
As for inflation, there's what the Fed was calling "transitory," mostly due to the giant supply chain backup. That's over. And then there are what are called "base effects." This means that, for example, if gasoline goes from $3 to $5/gallon, there's inflation along the way, but once it stops going up, there's no more inflation, but you aren't paying any less for gasoline either. In terms of energy, which affects a large portion of inflation, we are now well into base effects, and oil has not gone to the moon (despite many such a prediction). There are other base effects happening too. But services are still rising briskly. All of this refers to USA inflation.
In Mexico, the inflation has been less for several reasons. One, the consumption basket weighting is different. Two, for internationally-traded goods (like energy, manufactured goods, etc.) Mexico's strong peso has helped to shield the blow. Third we didn't seem to suffer from bird flu like in the USA, so egg prices, while up, haven't gone through the roof. (Or taken off, if you want a bad pun.)
As for the future of the peso, I have to say that I'm a bit confused myself. I spent a career in financial markets, pretty much consumer-related equities (stocks), so I'm no expert in foreign exchange. I did a little digging myself, but didn't come up with any satisfying explanations. Yes, AMLO has been fiscally conservative. Supposedly. But then looking at government deficits, they haven't really changed. Nor has Mexico's trade balance (still mostly in deficit). But there's one factor that's hugely in Mexico's favor, though this doesn't move all that fast: national debt. Mexico's government debt-to-gdp ratio is well below that of the "developed" world. And that developed world, led by the USA and Japan are piling on debt at truly unsustainable rates. I sometimes wonder if Mexico couldn't be something of a refuge in a first-world debt crisis. As that day draws nearer, investors in first world currencies are likely thinking the same.
And if that's the reason, then don't expect any radical depreciation of the peso any time soon.
Cheers,
Kim G
Roma Sur, CDMX