Ask any Expat retiree living down here south of the border and they will tell you; the dollar simply does not go as far down here as it used to.

The Consumer Price Index in Mexico for the first six months of this year reveals something every family living south of the border knows all too well; the cost of living is going up at a much faster rate and is outpacing any salary increases.

At the end of June 2022, Mexico registered an inflation rate of 7.99 percent and many economists are already predicting that number will likely surpass 10% before year’s end – something not seen in over two decades.

Chicken and Avocado Prices Through the Roof

This phenomenon has hit Mexico’s working families the hardest and federal programs put in place by this administration have been largely ineffective, according to José Antonio Centeno Reyes, leader of the National Chamber of the Transformation Industry (CANACINTRA).

“Inflation is very democratic, hitting all of us – rich and poor alike. Its effect however, weighs much heavier on working families struggling to put food on the table each day.” Centeno Reyes said.

“The president’s programs to control inflation have simply not been enough and much more aggressive action is needed,” he pointed out.

Expat Retirees Feeling the Pinch

Over the last several decades, many retirees from the U.S. as well as Canada have moved to Mexico in search of warmer year round weather combined with a lower cost of living, helping to stretch their fixed incomes and enjoy a higher quality of living.

While not much has changed with the warm weather and the sandy beaches are as attractive as ever, the cost of living has been increasing faster than their retirement incomes, forcing many to cut back on their expenses and lifestyles.

Some Expats in Mexico have even had to relocate as the cost of housing in many areas has skyrocketed, causing local rental rates to increase as well.

US Dollar : Peso Exchange Rates

One of the reasons for U.S. retirees starting to feel the pinch from inflation is related to the exchange rate these past several months. Paid in dollars, retirees have historically enjoyed a good standard of living here in Mexico, living off a retirement based on a currency that had held itself as inflation proof against the peso for the most part.

Since spring of 2021, the Mexican peso has held fairly stable against the dollar, averaging about 20.3 pesos to the dollar with only small, incremental ups and downs and rarely exceeding even one peso.

However during that same time, housing costs on the Baja Peninsula have been going up steadily along with daily rates for gardeners and housekeepers and basically everything Expats regularly purchase at their local stores and markets.

U.S. retirees were given a 5.9% COLA increase at the beginning of 2022 however that was offset by an increase of nearly 15% in their Medicare Part B premiums.

Analysts: No Bailout in Mexico

Forbes is reporting that analysts at Bank of America (BofA) believe that the inflation seen here is directly related to the fact that Mexico’s economy is overheating due to weak production and supply capacity.

The analysts concluded that the lack of pandemic related fiscal aid for business here in Mexico resulted in many companies in critical sectors of the economy to shut down for months during late 2020 and into 2021. And the impact of those closures is only now being felt.

Forbes went on to note that while on the surface it may appear that business is back to normal here in Mexico, a closer look reveals that many of the larger companies are still struggling. The overall effect has caused a notable impact on the production capacity of the economy and will likely continue through 2023 and even into 2024.

Future for Expats

How all of this will play out in the near future for Expats here on the Baja Peninsula of Mexico is largely dependent on a number of factors:

• The local housing markets in Baja Mexico
• COLA increases for SS recipients in 2023 and 2024
• US Dollar – Mexican Peso exchange rate trends

One benefit from the pandemic is the dramatic increase in the number of remote jobs available today and if the inflationary pinch on your monthly budget continues for much longer, you may want to start exploring some of the online job opportunities being offered to help supplement your retirement income.