Prices at Mexico City gas station are shown as Mexico gas prices are forecast to jump 20 percent in January.

‘Gasolinazo’: Mexico Gas Prices Spike 20 Percent On Deregulation

Yesterday, protests erupted in Mexico: gas prices shot up by 20 percent in areas of the country after the Mexican government’s new deregulation policy went into effect. The unpopular measure is being called “gasolinazo,” which is reported to translate to “price slam,” by Mexican citizens who have become accustomed to the federal government controlling prices at the pump.

For many Mexicans, who are used to the idea of the government setting gas prices, yesterday’s spike is being perceived as a price hike. Rather than a price hike, which implies that the Mexican government is continuing to set the price, the uptick is said to be the result the market being opened to the forces of supply and demand, as the country prepares to open its state-controlled oil and gas resources to international oil companies in March; the first time since 1938, the year the government nationalized its petroleum reserves, as reported by the Washington Post. The government of Mexico has set the official price of gas in the country since 1992.

Despite the Mexican government effectively running a monopoly on the production and sale of gasoline in the country for over 80 years, Mexicans are reported to pay the second-highest prices for gas in the world, trailing only behind South Africa, even though the country has the 17th largest oil reserves, close to 10 billion barrels, as reported by World Atlas. Citizens of Mexico appear to be familiar with this seeming disparity.

“There was a sort of psychosis going around [in the 1980s] that gasoline price hikes every other day caused inflation, which helped cause shortages of basic goods,” David Shields, with Energía y Debate, was quoted by the Washington Post. “This remains in people’s minds.”

Mexican President Enrique Peña Nieto set the wheels in motion for gas deregulation beginning in 2013, as reported by Oliver Wyman. He promised the move would result in the nation gaining “more energy, more cheaply for all Mexicans,” and GDP growth of 5 percent annually, by 2016. Expecting an economic windfall from the change, Peña Nieto’s administration was described as starting to “borrow and spend” revenue that had not yet been generated.

Mexican President Enrique Peña Nieto speaks at the United Nations.
Mexican President Enrique Peña Nieto speaks at the United Nations on September 20, 2016. [Image by John Moore/Getty Images]

As Mexican GDP is expected to grow at only 1.1 percent and inflation is forecast to jump to close to 5 percent, in 2017, Mexicans appear to be feeling the squeeze at the pumps — and are becoming impatient. The 1992 move by the government was held up as a measure to control inflation. For many citizens, higher gas prices equate to higher prices for staples, such as transportation and food.

“In rural areas, people will starve to death,” a woman at a protest in Mexico City was quoted by Press TV. She went on to describe the rise in prices, attributed to deregulation, as a “price hike.”

Protesters in Mexico City shut down a gas station; chanted slogans decrying the move by President Peña Nieto, admonishing the government to “roll back” prices to what was paid in 2016; and called attention to the poorest among Mexicans, expected to be hardest hit by the price spike.

Mexican gas is reported to be sold to foreign nations for $0.50 per liter, while Mexicans are reported to be paying near $1.00 at the pumps for the lowest-grade gas. A taxi driver interviewed by Press TV expressed frustration with working longer hours for less money, combined with the fact that the minimum wage in the country hasn’t been raised in years. Litler reports that the official Mexican minimum wage was raised on January 1, 2016, by 4.2 percent, from $4.08 to $4.25, seemingly not keeping pace with 4.7 percent inflation and 20 percent gas-price shocks, giving perspective to the cab driver’s point of view.

Protests against 'gasolinazo' Mexico gas price hikes erupted in Mexico City yesterday as prices at the pumps shot up by 20 percent.
Outside Mexico City’s National Palace, yesterday, a man protests with a flag reading “No more gasoline price slams.” [Image by Rebecca Blackwell/AP Images]

When the price of oil plunged from over $100 per barrel to under $50, in 2014, prices at the pumps dropped, if not by the same amount, at least to some degree, in the United States and Canada. During the same period, the state-owned Mexico gas producer Pemex was reported to have maintained higher prices.

Trading Economics reports that the price of gas in Mexico fell, by about 22 percent, from the beginning of 2014 through the end of 2015. Over the same period, Gas Buddy reports that the average price paid for gas in the United States fell by over 30 percent. Mexican gas prices hit a low of $0.68 per liter in November 2016. It is being reported that some gasoline retailers were hoarding fuel in anticipation of deregulation, possibly further exacerbating the shock at the pumps.

[Featured Image by Rebecca Blackwell/AP Images]

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