Heads – Americans Win; Tails – Mexicans Lose

The American dollar is “heading north” of 18 pesos (no pun intended). This is great for Americans living in Mexico. But, is it good for the Mexicans whose businesses we patronize?

Here’s just one example…

Hole-in-the-Wall Bakery

Hole-in-the-Wall Bakery

There’s a little hole-in-the-wall (really…see the picture) panaderia, or bakery, around the corner from where I live. Its proximity makes it difficult for me to stay on a diet. Six days a week, José Maria and his wife bake a selection of breads, rolls, and sweets. There’s plump bolillos (rolls), biscuits, donuts, cinnamon rolls, muffins, and cookies. They supply the little corner stores, abarrotes, in San Antonio. They also have a small shop in the front of the bakery where they sell at retail. There you can buy whatever is available for 4.5 pesos each (about $.25).

José Maria and I have briefly talked several times. Once I remarked about his large selection of items. He looked over his shelf and agreed. “Making them is the easy part,” he shared. “Selling them is difficult.” He’s a good baker, and his selection keeps growing. Once people discover his place, I can’t imagine that being a problem.

Since that conversation, I’ve seen him walking down the street to Jesus’ little store or Laura’s Superette with a tray piled high with baked goods. Or he might be driving his car to stores farther away with a pastry-filled back seat.

Last week I was curious about how the increase in the dollar was affecting him. I asked him about the ingredients he used. “Where do you get your wheat,” I asked him.

“About half of it comes from the United States,” he answered. The other half comes from Mexico. The stuff from Mexico is better,” he chided.

“So, have your prices for ingredients gone up,” I continued. His expression became more serious.

“They haven’t gone up yet,” he explained. “But they will.”

When you understand that his market is local working people, you realize why he’s concerned. 4.5 pesos doesn’t seem like much. However, a house cleaner makes only 50 pesos ($3) an hour. Laborers don’t make much more. There’s a guy who will wash your car while you shop up the street for 35-40 pesos. At some point, José Maria will have to raise his prices to keep up. And, his customers will have to pay more.

I wrote about the rise of the dollar back in December. Back then the dollar had appreciated 10.6% in the short time I was here. The recent exchange rate means that, in 11 months, the dollar has risen about 40%. Yikes!

I usually don’t pay much attention to the prices in the markets and stores. I eat out a lot, so I pay attention to menu prices. In December, I discussed the rise in the price of a steak at one restaurant that was tracking right along with the dollar. As its price increased in pesos, the cost of the steak stayed at $9.52US. This past spring, that same steak had risen from 119 pesos to 179 pesos, costing 50% more in pesos. Meanwhile, today that steak costs me $10.22 or about 7% more.

The restaurant appears to be doing well. There’s no shortage of middle class Mexicans frequenting it. Someone’s doing well in Mexico! While the Canadian dollar has been relatively stable against the peso, some Canadians I know are starting to complain. They buy their airplane tickets in U.S. dollars, some pay their rent in U.S. dollars, and it’s more expensive to buy a steak at that restaurant. It will be interesting to see if fewer Canadian snowbirds make the trek down here (and Florida too) this winter.

One thing is for sure. The dollar won’t stay up forever. You know what they say: What goes up…

If the doom-sayers are correct, the dollar may have a hard fall at some point in the not-so-distant future. Then the Americans among us down here on fixed incomes and meager savings will feel the pinch.

Until then, let them eat steak!

Pesos and Dollars

How can prices rise and you pay the same? Be a U.S. citizen living in Mexico!

The American dollar has been having a rally of sorts. Its value has risen against every major currency, including the Mexican Peso.

If you’re an American living here, and the value of the dollar is rising, your dollars can go further, depending on the item – at least until the higher costs Mexicans pay for foreign goods catches up.

Here’s an example: the cost of a pretty darn good skirt steak dinner at a restaurant here called Tango. When I first visited in September, the 14 oz. skirt steak with a side dish cost 119 Pesos (US$9.52). The exchange rate was about 12.5 Pesos to the dollar. Today, that same steak dinner costs 140 Pesos, a 16.6% price increase. But, with the exchange rate at 14.7 Pesos to the dollar, it’s still only US$9.52.

Another example: my first night in Ajijic this past September. I went to a restaurant on the plaza called El Jardin. My beef fajitas cost 73 Pesos (US$5.84). El Jadin hasn’t raised its prices in Pesos since. So, the same beef fajitas, today, cost US$4.97.

Every week, I usually withdraw about 2,000 Pesos from my U.S. bank account. The table below shows the settlement amount of each transaction.

Week 1     $154
Week 2     $150
Week 3     $148
Week 4     $144
Week 5     $141
Week 6     $138

Today, the same amount of Pesos is costing me 10.3% less than when I arrived. If you’re an American, with a lease, paying rent in Pesos (unfortunately, I’m not) you’re in even better shape, because your rent has gone down about 10.3% in the past 4 months. That means that US$1000 per month rental now is costing less than $US900 in real terms.

Mexico’s central bank is trying to change this situation. I’m not sure how long it will last, but as an American living in Mexico, I’ll enjoy the ride.