Collection by IEPS will be negative, predicts BBVA Research

If the resistance of the Federal government continues to allow the increase in prices in the national gasoline market and international prices at levels similar to the current ones, the collection for the Special Tax on Production and Services (IEPS) on fuels could even be negative in the following months, says an analysis by BBVA Research.

“It would not be the first time that a public subsidy for gasoline consumption was observed in Mexico,” he recalled.

He adds that this resistance of the federal government is partly explained by the historical experience in Mexico of the so-called “gasolinazo” of January 2017, which represented higher levels of inflation.

BBVA estimates that a 33.3% increase in the international price of conventional gasoline generally has an immediate impact on IEPS collection for gasoline and diesel of -72.8% at a quarterly rate.

In the same way, he emphasizes, this increase propitiates an additional quarterly reduction of 81.7% in said collection during the subsequent quarter and two quarters after the shock to the international price of gasoline the effect vanishes, as it is not statistically different from zero.

It also points out that the National Consumer Price Index (INPC) generally responds immediately with a quarterly variation of 0.6% to the aforementioned increase and the effect quickly fades from the following quarter.

It will depend on decisions made by the government

The document states that the usefulness of these results to forecast the future evolution of IEPS collection for gasoline and diesel, and general inflation will ultimately depend on the decisions made by the federal government in terms of price policy. to the IEPS for gasoline and diesel.

Taking into account the historical experience of the “gasolinazo” and in a context of relatively high inflation where various factors will keep it high in the short term, it is very likely that this government will avoid a greater inflationary impact in 2022, but at the cost of a significant public subsidy for gasoline consumption.

It is at this point that BBVA Research economists mention that, “although the higher level anticipated for the price of oil will have a favorable effect on public revenue in 2022, the collection of IEPS gasoline and diesel could be negative if the policy of subsidizing the consumption of gasoline to avoid another ‘gasolinazo’ and a greater inflationary impact”.

two-way impact

In its analysis, BBVA refers that, although the commercial ties with Russia and Ukraine are not relatively strong in the case of Mexico, the impact of said conflict, which began a little over a month ago, is already being felt mainly in income. public and consumer prices.

There he details that in the first instance, the higher oil prices are helping public finances, but – precisely – the higher international prices of gasoline have eliminated the collection obtained by IEPS on gasoline and diesel.

Secondly, he points out, consumer prices will be directly affected by the higher prices of energy products (perhaps excepting gasoline) and indirectly by increases in the international prices of grains and metals.

“This will affect both non-core and core inflation, through higher prices of food and non-food merchandise. Finally, higher inflation in the short term and the increase in upward risks regarding its future trend will be reflected in higher interest rates than those previously forecast”, he emphasizes.

In this way, BBVA anticipates that Banxico will raise the reference rate again by 50 basis points to 6.50% this week, and will take it to levels of 8.0% at the end of the year.

“Higher inflation that will impact the disposable income of households (if not offset by increases in real wages) and a more restrictive monetary stance, to limit inflationary risks, will limit economic growth,” he concludes.

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