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Why is travel to Mexico so expensive right now?

Travelers flocking to Mexico the past few months may have picked up on something new: Things are not as much of a bargain as they used to be. It's not all in your head -- the peso is having a record-breaking year, and it's definitely more expensive to travel to Mexico these days than it has been in a very long time.

According to the Financial Times, the Mexican peso is having its strongest streak in more than five years, thanks to a variety of reasons, one of them being the surge in demand for Mexico as a travel product. In fact, the peso is one of the top performing currencies of 2023, having has risen 8.5 percent this year to trade above 18 to the dollar.

"Mexico's currency is benefiting from a confluence of domestic and international factors," writes the Financial Times. "The country, which shares a 2,000-mile border with the U.S., is set to be a prime beneficiary of companies focusing on their supply chains nearer critical markets and away from China in a phenomenon known as 'nearshoring.'"

BMW, for example, said that it would spend more than $860 million to expand its electric-vehicle production in Mexico, and Tesla plans to build a factory in the country. Other factors like foreign investment hit an all-time high -- to the highest level since 2015. According to Hotel Investment Today, Mexico leads Latin America's hotel development pipeline with 203 projects in the works totaling 33,475 rooms. This includes new construction, renovations and brand conversions.

"The weakening of the dollar does have something to do with [the situation], but perhaps more due to Mexico's refusal to infuse the economy with stimulus during the pandemic," said Zach Rabinor, CEO of Journey Mexico. "While this surely resulted in a 'lower quality of life' for many of Mexico's 130 million-plus residents, it strengthened the peso vis a vis economies/currencies that printed a lot of money."

Rabinor also added that another factor is the ever-growing volume of remittances sent back to Mexico by Mexican Americans and immigrants working in the U.S. The Financial Times article also echoed this point. According to the Financial Times, transfers from abroad now make up 4 percent of the country's GDP.

Shift to luxury development

What does this mean for travelers? At the most basic level, it means that Mexico's top tourist destinations are noticeably more expensive, certainly on par with many vacation destinations in the United States. And with more and more destinations in Mexico turning to luxury development over mid-level, the shift is palpable.

Above all else, this can become great news for Mexico and the people who live and work to make it such a beloved vacation destination for the rest of the world. It's certainly narrowing the gap between the tax brackets. A change in the value of the dollar is part of the progress that one would hope to see in a country that relies so heavily on tourism.

"While the above factors are important, not to mention the unfavorable exchange rate, I think it has more to do with the unbridled demand post-pandemic than anything else," Rabinor said. "The pandemic supercharged Mexico as a destination, including the lesser visited interior and off-the-beaten path coastal destinations, too. And Mexico, despite its reputation as a cheap destination, is not, nor does it deserve to be when you consider the incredible value it offers."

Mexico's pandemic-era tourism win

Credit where credit is due. The world turned to Mexico when every other country closed its borders during the pandemic. This was pivotal for Mexico, which has always had gorgeous destinations, fantastic accommodations and attractions and a wonderful, welcoming attitude. But the pandemic thrust Mexico into a new spotlight -- and travelers responded. Those who had overlooked Mexico in favor of the farther afield had an opportunity to learn that much of what they sought from travel was actually just across the border.

"Close enough and far enough, familiar enough, yet exotic enough; exceptional quality of hotels, villas and world-class service, not to mention some of the best food, wine, spirits on the planet. All of this in the context of a super warm, inviting and friendly culture where 'mi casa es tu casa," Rabinor said.

So yes, Mexico is definitely not the "cheap" destination it once was. But paying for quality and financially acknowledging the exceptionally hardworking people and businesses that help make Mexico the top travel destination for Americans is certainly not the wrong move.

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