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Gas prices to rise up to 20.1% in new year

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Loosening gas prices in Mexico so far has led to higher price hikes. Photo: File

Gasoline prices will rise as high as 20.1 percent when the Ministry of Finance and Public Credit rolls out a new price list on Jan. 1.

The finance ministry said the widely used Magna gasoline brand will rise an average of 14.2 percent, bringing it to 15.42 per liter in Mérida; Premium fuel will go up an average of 20.1 percent to 17.11 pesos per liter in the capital city.

Diesel will rise 16.5 percent, to 16.49 pesos per liter at Mérida’s pumps. 

This is the largest price increase consumers have seen in two decades, reports Bloomberg.

2017 gas prices vary by region. Coastal’s prices are a little less than the interior’s. Click for larger view.

Authorities in Mexico City blamed the increase on international fuel prices. The hike is also part of a program to end years of government-set prices at the pump.

In Mérida and across Yucatán, prices will be a little lower than the national average. See chart, left.

Prices will be adjusted periodically; another set of rates go into effect at 3:59:59 on Feb. 4, based on Pemex’s costs. Then the maximum price will be set bi-weekly, until Feb. 18, when it will be set daily.

“It’s an important change,” Finance Minister Jose Antonio Meade said. “It’s a change that will allow prices to reflect costs, and avoid artificial distortions.”

The program is likely to stoke more inflation, which has already passed the central bank’s 3 percent target due to a sharp peso depreciation.

“This is a positive in the long term, but even so, in the very short term, clearly these rises … will result in inflationary pressures for consumers throughout 2017, and we’ll see a deceleration of internal demand,” said Alejandro Cervantes, a Banorte economist.

The program swaps a long-standing policy of government-set gasoline prices for market-based prices. It is a cornerstone of the landmark 2013 energy reform program ending the 75-year monopoly enjoyed by state oil company Pemex. But it comes at a time when international prices are rising.

Authorities say they’re confident the freeing of prices will ultimately benefit consumers through greater competition between gas stations.

In April, Mexico allowed private companies to import fuels for the first time, nine months ahead of what the energy reform program originally stipulated.

Gasoline prices in Mexico are higher than in the United States, yet Pemex loses about $3 billion USD, according to an analyst at Nomura.

The surge in prices, which newspapers are calling a “gasolinazo,” meaning a fuel price slam, came with warnings by the government against gas stations hoarding fuel. Gasoline shortages have swept several states due to illegal taps of pipelines, while officials accused some stations of under-reporting their supply. Pemex has tweeted safety warnings against drivers storing fuel in their homes.

Pemex may own the entire fuel distribution infrastructure, but that infrastructure is limited—Mexican ports have less capacity than that of a single company operating in the port of Houston—and that could curb the potential for lower prices at the pump.

Source: Reuters, Pemex, Wall Street Journal, Bloomberg

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