Gasoline prices unnerve Mexicans as election year begins

MEXICO CITY (Reuters) — Mexico's government on Wednesday denounced forecast price hikes by fuel retailers, saying increases were unjustified as it sought to allay public concern about high inflation at the start of a presidential election year.

Meanwhile, gasoline and diesel prices are seen by one retail association rising an average of about 7% this year due to tax changes, volatility of the peso currency and higher crude prices.

"That they say they are now going to hike prices is unjustified. We don't see the market conditions for this to happen," said Jose Rogelio Garza, a deputy economy minister.

The forecast from the Mexican Association of Gasoline Businesses (AMEGAS) was quickly dismissed as false in a statement by state-run oil company Pemex, but that did not stop complaints.

The price of LNG rose by an average of 25% in 2017, while electricity rates have also inched up, according to government data.

As inflation hovers near a 16-yr high at just below 7%, officials insisted the forecast price spikes, which have triggered social media outrage and threats of protests, are not warranted.

"In 2018, variations in international fuel prices will continue to be cushioned," the finance ministry said in a statement on Tuesday, emphasizing a scheme that allows it to reduce a key excise tax applied to fuel sales.

With presidential elections looming in July, the government is especially sensitive to the possibility that protests could further erode its support among voters.

But beyond rhetoric, the government is mostly powerless to force the hands of gas station owners as its ability to set prices ended in late November after it finalized a gradual, nationwide fuel liberalization.

The move to market prices, part of sweeping 2013–2014 energy reform, ending a transitional period during which it still set maximum gasoline and diesel prices.

The fuel regulator, or CRE, said in a statement that prices in central Mexico for Pemex's Magna gasoline, which makes up more than 80% of total sales, have only risen 1.3% compared to average prices at the end of November, an increase it described as stable.

The CRE reported that the average nationwide price on Tuesday for Magna stood at 16.13 pesos per liter.

That works out to about $3.15/gal at the current exchange rate.

For many years prior to the passage of the energy reform, fuel prices in Mexico were set by the government and were the same across the country.

Reporting by Diego Oré and David Alire Garcia; Additional reporting by Alberto Fajardo and Adriana Barrera; Editing by Cynthia Osterman

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