(Bloomberg) -- Mexican consumer companies from Wal-Mart de Mexico SAB to El Puerto de Liverpool SAB may see sales flag when the country raises gasoline prices by as much as 20 percent in January.
Retailers may be the most affected by the jump in prices, which risks eroding consumer sentiment and purchasing power amid a weakening peso that has already fueled concern about inflation, traders say. Supermarket operators Grupo Comercial Chedraui SAB and Organizacion Soriana SAB may also take a hit as the cost of gasoline takes a bigger portion of consumers' budgets.
“This makes a tough situation in Mexico even tougher," said Jorge Lagunas, head of equity strategy, sales and trading at Interacciones Casa de Bolsa SA. "We already had a deteriorating scenario for 2017 with Donald Trump being elected, rising interest rates, high inflation and high valuations. You add another negative impact -- it maximizes the negative perception for Mexico. It's not good for capital markets."
Mexico is letting gasoline prices surge as the government gradually cedes control of the fuel market to private development following a landmark energy overhaul in 2013. In 2016, the government limited monthly gains in gasoline prices to no more than 3 percent above the price from a year earlier. Aside from a jump in August, prices mostly held steady as a result.
Interacciones sees inflation rising in the first quarter because of fuel prices with annual inflation ending 2017 around 5 percent, Lagunas said. Interest rates may increase to 7 percent, he said. Mexico's annual inflation quickened to 3.31 percent in November from 3.06 percent in October. The central bank raised the benchmark lending rate by half a point to 5.75 percent on Dec. 15, policy makers' fifth increase of 2016.
Mexican consumer confidence has already weakened this year and the higher gasoline prices could exacerbate this, said Aldo Miranda, an equity sales trader at CI Casa de Bolsa in Mexico City.
“I don't see any companies benefiting from the change,” Miranda said. "There's going to be a direct blow to consumers' pockets and their purchasing power."
As gas prices rise, so too will transportation costs, and companies like Grupo Bimbo SAB, the world's biggest bread maker, milk producer Grupo Lala SAB and Grupo Herdez SAB, which sells condiments and canned goods, could see sales suffer if they try to pass on the increased cost to consumers, Miranda said.
Representatives from Liverpool, Walmex, Chedraui, Lala, Bimbo and Herdez didn't respond to requests for comment. Soriana declined to comment.
Mexico's benchmark IPC index rose 6.2 percent in 2016 and was up 1.3 percent at 9:45 a.m. Mexico City time on Tuesday.
--With assistance from Nacha Cattan Eric Martin and Adam Williams To contact the reporter on this story: Michelle F. Davis in Mexico City at mdavis194@bloomberg.net. To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Jonathan Roeder, Jessica Brice
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