Mexico posted record remittances in May, fueled by a larger inflow of cash from abroad for celebrations around Mother’s Day.
Mexicans living abroad — mainly in the US — sent home $5.69 billion in May, a 10.7% increase compared to the same period a year ago. The result exceeded the $5.43 billion median estimate of analysts surveyed by Bloomberg and the previous record high of $5.36 billion in October, according to central bank data published Monday.
Historically, the total number of remittances in May tends to edge higher as households celebrate Mother’s Day and more Mexicans living abroad send additional money back home for the occasion.
“We estimate that about 10% of the increase in transactions is explained by the effect of Mother’s Day,” said Juan Jose Li, a senior economist at BBVA.
Over the past 12 months, the cumulative flow of remittances totaled $60.8 billion, the highest on record, and on track to reach approximately 4% of Mexico’s gross domestic product this year.
The robust remittance flows seen in the last few months have been supporting private consumption, especially among low-income families “who have a high propensity to consume and are the overwhelming recipients of such transfers,” Alberto Ramos, chief economist for Latin America at Goldman Sachs Group Inc., wrote in a research note.
This year, part of jump in remittances is a result workers abroad sending more dollars home in order to compensate for the peso’s appreciation as well as the drag on purchasing power due to elevated inflation, said Gabriela Siller, director of economic analysis at Grupo Financiero Base.
Over the last year, the peso has been the best performer against the dollar among 31 major currencies tracked by Bloomberg, gaining 19%, and is currently trading at its strongest level since late 2015. While inflation is now slowing after surging to a two-decade high of 8.7% last year, it remains elevated by historical standards at 5.8%.
“Remittances lost 7% of purchasing power and the trend has been ongoing for the last seven months,” said Siller, adding that consumer’s purchasing power could drop 12% in value by year-end.
In the coming quarters, however, Mexico could see a moderation in remittance flows due to a slowdown in economic activity in the US, wrote Ramos.