Brazil IPCA (Aug.)

The rise in Brazil’s headline inflation rate to 9.7% y/y last month was driven by a broad-based strengthening of price pressures. With the economy re-opening and electricity tariffs hiked this month, the headline rate will remain uncomfortably high well into next year. Our base case is that Copom will hike the Selic rate by 100bp (to 6.25%) when it meets this month, but the risk of a larger hike is growing.
William Jackson Chief Emerging Markets Economist
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Latin America Data Response

Mexico Bi-Weekly CPI (Oct.)

The further rise in Mexico’s core inflation rate to a 12-year high of 5.1% y/y in the first two weeks of October, which contributed to the rise in the headline rate to 6.1% y/y, will add to the growing hawkish sentiment at the central bank. However, given the weakness of the economy, we think the tightening cycle will remain gradual with another 25bp rate hike, to 5.00%, at the next meeting in mid-November.

22 October 2021

Latin America Economics Focus

A fresh look at Brazil’s public debt problem

Suggestions that Brazil’s government will raise welfare spending – and circumvent the spending cap in doing so – add to the evidence that there’s little appetite for the long-term fiscal squeeze needed to stabilise the public finances. Taken together with slower growth and higher interest rates, we think that the public debt-to-GDP ratio is likely to be on an upwards trajectory from next year. This feeds into our view that government bond yields will climb higher and that the real will weaken further from here.

20 October 2021

Latin America Economic Outlook

Best of the recovery now over

Easing virus outbreaks and the lifting of restrictions boosted recoveries across Latin America in Q3, but growth looks set to slow sharply over the coming quarters. The re-opening boost will soon fade. Fiscal support is, or will be, unwound while sustained above-target inflation will prompt more monetary tightening than most analysts expect. Meanwhile, supply constraints and falling commodity prices are becoming headwinds to the regional recovery too. So, having beaten expectations in recent months, the pace of the regional recovery is now likely to disappoint. The spectre of more populist policymaking will keep public debt concerns high, particularly in Brazil, putting local financial markets under pressure.

19 October 2021

More from William Jackson

Latin America Economics Weekly

Brazil’s recovery worries, hawks fly in Chile

The disappointing economic data out of Brazil this week has cast some clouds over the economy’s recovery prospects. As it happens, we think that GDP growth will pick up quite strongly in Q3, but we’re increasingly concerned that electricity constraints could put the brakes on the recovery later in the year. Elsewhere, Chile’s central bank became the latest in the region to spring a hawkish surprise and we think the policy rate will be raised further that the central bank’s new guidance implies.

3 September 2021

Emerging Europe Data Response

Turkey Consumer Prices (Aug.)

The stronger-than-expected Turkish inflation reading of 19.3% y/y in August doesn’t rule out the start of an easing cycle later this year. However, we now only see scope for an interest rate cut at the final MPC meeting of the year.

3 September 2021

Latin America Data Response

Brazil Industrial Production (Jul.)

The 1.3% m/m fall in Brazilian industrial production in July confirms that the sector continued its weak performance into the start of Q3, and surveys suggest that August will be weak too. That said, with the economy re-opening, stronger growth in services should drive a pick-up in overall GDP growth.

2 September 2021
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