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Sourcing in Mexico Could Get More Costly as Wages, Gas Prices Rise

Mexico’s minimum wage just went up 10 percent and gas prices are set to go up by more than double that.

The country’s National Minimum Wage Commission agreed to raise the minimum wage for workers to 80 pesos ($4) per day as of Jan. 1. A portion of the hike was the standard agreed upon 3.9% annual wage increase, and the remainder of the increase was what the council called a “recovery” amount since there was no increase to the wage rate in 2016.

Wages were raised, according to the council, to restore purchasing power in the country, and considering roughly 15 percent of Mexico’s workers earn minimum wage, the hope is that they’ll have more money to put into the economy.

The nominal wage increase may not have the desired effect, but it could be enough to send costs up for those importing goods from Mexico.

What could also send sourcing costs up in the country, is its rising gas prices.

The Mexican government said last week that it would increase the price of gasoline by as much as 20.1% and diesel by 16.5% this month.

Meeting protests and rage over the gas price hike, Mexican president Enrique Pena Nieto said prices will come down eventually as the government intends to end subsidies and let the market determine prices starting in March, according to Telesur.

Government officials claim the higher gas prices won’t add to inflation or do much to change the prices consumers pay for goods and services, but it is generally understood that several things change when gas prices spike: consumer spending slows, confidence suffers (which also affects spending) and transportation costs impact FOB costs.

The wage and gas increases in Mexico come at a time when the country’s currency is down and falling. Though a depreciated peso should make Mexico more competitive, its exports have not increased significantly. Between August and October, Mexico’s exports to the U.S. were down 0.6%, and its exports were down 5.3% for the year ended October 2016 compared to the same time last year, according to the Office of Textiles and Apparel (OTEXA).

Mexico’s peso hit a record low while votes were being tallied for the U.S. presidential election, and in the days after Donald Trump won, the currency fell 10 percent. Now one U.S. dollar equals 21.41 Mexican pesos—thanks in part to Trump and his promises to renegotiate NAFTA and tax Mexico for his wall—but the currency’s fall can also be attributed to the country’s own economic and political issues, changes in oil prices and expectations about the Federal Reserve’s monetary policy changes.