Arizona-Mexico Tourism Costs Rise as the Peso Falls

June 06, 2017
George Hammond, Ph.D., Director and Research Professor, EBRC

Mexican visitors to Arizona are a key part of the state’s overall tourism picture. Indeed, according to the most recent research by the Economic and Business Research Center (EBRC), Mexican visitors spent an estimated $2.3 billion in Arizona in 2013.

Costs are one key driver of Mexican visitation in the state. Major travel expenditures tend to include (but are certainly not limited to) the cost of lodging for overnight visitors, the cost of gasoline for those driving across the border, the cost of meals for those eating out during their visit, and the peso cost of the dollar (the exchange rate). Using data from multiple sources, the EBRC has created tourism cost indexes that reflect the influence of each of these spending categories for the two largest metropolitan areas in the state: Phoenix and Tucson.

Figure 1 shows the Arizona-Mexico Tourism Cost Index for the Phoenix MSA, denominated in both dollars and pesos. From January 2007 through March 2017, over-the-year growth in the peso-denominated index averaged 7.8%. That rapid increase was primarily driven by the U.S. dollar-Mexican peso exchange rate, which rose an average of 6.3% over the year during the past decade. The increase in the tourism cost index was a little below the overall U.S. rate of (peso denominated) inflation during the period of 8.1%. As Figure 1 also shows, the dollar-denominated index rose at a much less rapid pace, with an over-the-year growth rate that averaged 2.0% during the period.

Note that the peso-denominated index began to rise at a more rapid pace starting near the middle of 2014. This reflected the rapid rise of the U.S. dollar versus the peso during the period. As the U.S. dollar appreciated versus the peso, it drove up costs for Mexican visitors. Initially, this was offset in part by declining gasoline prices. However, by 2016 tourism costs were rising rapidly both because of the appreciation of the dollar and rising gasoline prices in the U.S. There is some good news here, because many macroeconomic forecasts predict that the U.S. dollar will decline against the peso during the next few years. This means that peso-denominated tourism costs will decline, other things the same.

Figure 1: Arizona-Mexico Tourism Cost Index for the Phoenix MSA

tourism cost index phoenix

The story was similar for the Arizona-Mexico Tourism Cost Index for the Tucson MSA (Figure 2). Over-the-year growth rates for the Tucson peso-denominated index averaged 7.4% during the January 2007 to March 2017 period.  Thus, in Tucson as in Phoenix, tourism-related costs rose at a slower pace than overall (peso-denominated) inflation. More recently, the index began to gain momentum in 2014 and then accelerated markedly during 2015, again driven largely by the appreciation of the U.S. dollar. As Figure 2 also shows, much of the recent increase in the peso-denominated index was driven by the decline in the peso versus the dollar. The dollar-denominated index rose at a much slower pace, just 1.6% per year.

Figure 2: Arizona-Mexico Tourism Cost Index for the Tucson MSA

tourism cost index tucson msa

Construction of the Indexes

The Arizona-Mexico Tourism Cost Indexes for the Phoenix and Tucson MSAs reflect costs likely faced by Mexican visitors to the state. The indexes are composed of three large components of tourism expenditures: hotel room rates, gasoline prices, and food away from home. The data on Phoenix and Tucson hotel room rates come from Smith Travel Research (STR). Phoenix MSA and Tucson MSA regular unleaded gasoline price data were obtained from AAA. Food away from home prices were obtained from the U.S. Bureau of Labor Statistics for the nation as a whole. All price data were seasonally adjusted. The price data were converted to Mexican pesos using the monthly U.S. dollar exchange rate obtained from the Board of Governors of the Federal Reserve System. Thus, the indexes take the perspective that Mexican visitors use pesos to buy U.S. dollars, then use dollars to purchases lodging, gasoline, and food away from home in Arizona.

The Mexican peso denominated price data were converted into simple month-month percent changes, which are then averaged to obtain the percent change in tourism costs in the metropolitan area. The average percent changes were then converted into an index level with a base period value of 100.0 in January 2006.

Find the latest monthly data for the Phoenix and Tucson tourism cost indexes, and a wealth of additional tourism data, on the new AZMEX tourism page.

Photo of travel bags and airplane in sky courtesy of Shutterstock.