Remittances continued to flow into Mexico at record high levels in the first two months of the year, but the current strength of the peso is diminishing their purchasing power.

The Bank of Mexico (Banxico) reported Monday that Mexicans abroad sent US $4.51 billion home in February, a 3.8% increase compared to the same month of 2023. It was the highest remittances total ever sent to Mexico in the month of February.

The vast majority of remittances to Mexico come from the United States, where millions of Mexicans live and work.

The total for January and February also increased, rising 3.4% annually to reach a record high of $9.08 billion.

The strong start to the year came after a record high of $63.31 billion in remittances were sent to Mexico last year, a 7.6% increase compared to 2022. Mexico is the world’s second largest recipient of remittances after India.

Meanwhile, remittances out of Mexico increased 32.7% in the first two months of the year to reach $218 million, Banxico said.

The ‘super peso’ erodes remittances’ purchasing power 

The stronger the peso, the less remittance recipients receive, as transfers are made in dollars but converted to local currency upon arrival in Mexico.

The peso was trading at around 19.5 to the US dollar at the start of 2023 whereas one greenback now buys about 16.6 pesos. According to Banxico, the average remittance last month was $384. At the current exchange rate, that amount is equivalent to 6,374 pesos, whereas at the start of 2023 it would have converted to 7,488 pesos.

Recipients of remittances — among which are many low-income families — thus receive about 15% less money than they did in early 2023 for a transfer of the same dollar amount. To compensate for the stronger peso, there is evidence that some migrants have increased the amounts they send in dollars.

While inflation has declined from the highs of 2022 and early 2023, the headline and core rates in Mexico remain quite high, further eating into the purchasing power of remittances.

Gabriela Siller, director of economic analysis at Mexican bank Banco Base, said on the X social media platform on Monday that the purchasing power of remittances has been on the wane for 16 months — the longest period on record.

“The loss of purchasing power is due to the appreciation of the peso and high inflation in Mexico,” she wrote.

Will 2024 be another record year for remittances?

The bank Banorte believes it will be. In a note published on Monday, the bank said there is a “favorable outlook for remittances in the short term due to positive signs in the United States economy.”

“Our view and that of the market continues to incorporate a ‘soft landing’ for [economic] activity in that country, and therefore we believe that flows of remittances will continue growing throughout 2024,” Banorte said.

The bank also said that favorable outlooks for the construction and services sectors in the United States — both of which are large employers of migrants — could lead to higher remittances being sent to Mexico.

For his part, the head of Latin America economics at Goldman Sachs, Alberto Ramos, said that a “moderation” of economic activity in the United States coupled with the current high level of remittances “should lead to a moderation” of inflows during upcoming quarters.

While remittances increased in annual terms in January and February, there was a month-over-month reduction in both months.

However, remittances are typically high in December, and February this year had two fewer days than January, making the 1.4% month-over-month decline unremarkable.

With reports from El Financiero, Expansión, EFE and Forbes México