Economics: Effect of Electric Power Rate Hikes
The Federal Electricity Commission issued a statement this past July 3 announcing that it was raising the electric power rates it charges industrial, commercial and residential customers with high power consumption levels due to the higher prices that the federal electric power utility is paying for the fuels it uses to generate electricity.
A number of representatives of business interests have insisted they will pass along the higher rates directly to end consumers of the goods they produce and that the rate increase would erode Mexico’s competitive position; the CFE responded that energy costs in Mexico remain internationally competitive.
In this week’s issue we describe the current structure of consumer rates and consumption volumes, as well as the possible effects to business costs and ultimately to consumer prices that might come from the rate changes just announced.
In other economic news, consumer prices increased 2.54% from levels of a year earlier in June, the lowest 12 month rate for that period since the authorities began publishing monthly inflation data in 1970. The relatively benign report was a result of an easing of the non core rate (1.16% year on year), which was influenced in turn by more than a half point drop in energy prices (-0.56% yoy), and only a slight uptick in the rate of inflation on livestock products, whose prices inched 0.28% higher as opposed to the 6.58% jump reported for June 2015. The prices of fruits and vegetables also experienced broad and significant rises (10.9%) in June.
Relating the aggregate demand components, for April private consumption and gross fixed investment showed a slow internal market behavior.
In April, gross fixed investment fell 2.1% compared to the same month of 2015, largely owing to a 3.8% drop in sending on machinery and equipment; within that component, investment in M&E or foreign origin fell sharply (-7.3%) even as spending on domestically produced machinery and equipment rose 3.2%.
Investment in construction fell 1.8% below levels of the same month of 2015 under the weight of an 8.3% reduction in the segment of non residential construction.
April produced somewhat marginally favorable readings of private consumption as spending by Mexican households grew at a 12 month rate of 1.2% according to seasonally adjusted data, the most restrained increase seen since a 1.1% rise in June 2014.
The firming of April’s headline rate was exclusively the result of a 3.6% rise year on year in consumption of domestically provisioned services, an increase just shy of the average 3.9% rate of growth seen during the previous 12 months.
In contrast, purchases of imported goods fell -1.9% on a seasonally adjusted basis compared to a year earlier at the same time as consumption of goods of domestic origin were down by 1.0%.
Lastly, consumption remained the main driver of the economy, but we expect its pace of growth will begin to slow in the coming months.
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