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Remittances to Mexico near a record but ‘super peso’ crimps spending power

People sending money back to Mexico this year have faced a new challenge: the “super peso.”

The Mexican currency reached the strongest levels against the U.S. dollar in almost eight years over the summer.

The skyrocketing peso has eroded the purchasing power of households in Mexico who rely on remittances from abroad. The currency’s rise means every dollar sent home yielded fewer pesos than before.

Coupled with inflation at home, the buying power of remittances is set to fall this year over last for the first time in a decade, according to Gabriela Siller Pagaza, chief economist at Banco Base.

“What is truly important for recipients of remittances is not the amount they receive in dollars but the how much they can buy with that in Mexico,” Siller Pagaza said.

In the 12 months ended in August, people sent more than $62 billion in remittances to Mexico, according to Banco Base. Over the same period, the peso advanced more than 15.6% and annual inflation came in at 4.64%.

Siller Pagaza estimates that the spending power of remittances in Mexico will decline 9.9% this year, the first drop in a decade and the largest percentage fall in 13 years.

The peso is down from its highs of less than 17 pesos per U.S. dollar in July, recently at around 18 pesos per dollar this week. At the start of the year, each U.S. dollar was worth 19.46 pesos.