Mexico Bi-Weekly CPI (August)

Mexico’s headline inflation rate dropped to a weaker-than-expected 5.6% y/y in the first half of August, but the further rise in core inflation will continue to concern the central bank. We expect another 25bp hike in the policy rate, to 4.75%, when Banxico’s Board meets next month.
William Jackson Chief Emerging Markets Economist
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Latin America Chart Book

Some good news on the political front

Political risk will be a major theme once again in Latin America this year, although recent developments have given cause for cautious optimism. Chilean President-elect Boric’s appointment of Mario Marcel, the current Central Bank Governor, as the next Finance Minister signals that his government may pursue prudent fiscal policies. And in Brazil, former left-wing president Lula (the front-runner in the presidential race) may be moderating his stance, having mooted to have asked Geraldo Alckmin, previously Lula’s centre-right rival, to be his running mate. However, there are still lingering risks in the region. Argentina’s government continues to play hardball with the IMF as the clock ticks down to reach a new deal. The make-up of Chile’s new constitution remains uncertain. And fiscal discipline could still waver around elections in Brazil and Colombia. These risks, and the implications for public debt trajectories, will probably put renewed pressure on currencies across Latin America.

25 January 2022

Latin America Data Response

Mexico Bi-Weekly CPI (Jan.)

The fall in Mexico’s inflation to 7.1% y/y in the first two weeks of the year gave the first sign that inflation has peaked and we think that it will continue to trend lower over the coming months. That said, the further rise in core inflation, to 6.1% y/y, will be a concern for the central bank, suggesting that it will deliver another 50bp rate hike, to 6.00%, at its meeting next month.

24 January 2022

Latin America Economics Weekly

What does FinMin Marcel mean for Chile?

President-elect Boric’s announcement today that (now outgoing) Governor of the Central Bank, Mario Marcel, will be Chile’s next Finance Minister is a clear signal that his government will pursue prudent fiscal policy. While the news is going down well with investors, we think that lingering political, fiscal and external risks will ultimately make it difficult for the peso to keep hold of its recent gains. We expect that the currency will weaken by 5-10% against the US dollar by year-end.

21 January 2022

More from William Jackson

Latin America Data Response

Brazil IPCA-15 (Aug. 2021)

The rise in Brazilian inflation to 9.3% y/y in the middle of August provides Copom with plenty to worry about and will keep it on course to hike the Selic rate by another 100bp (to 6.25%) next month.

25 August 2021

Latin America Economics Weekly

More fiscal worries in Brazil, the regional re-opening

Worries about a worsening of Brazil’s fiscal position in the run-up to next year’s general elections have continued to build, and we think there may now be a fiscal risk premium of about 50bp embedded in sovereign dollar bond yields. Meanwhile, governments in the region took several important steps towards re-opening this week, and near-term economic prospects continue to brighten. But the growing prevalence of the Delta variant poses a worrying threat.

20 August 2021

Latin America Chart Book

Inflation risks growing

Inflation is at, or close to, multi-year highs across Latin America which has prompted a slew of interest rate hikes across the region. We think that central banks in Brazil, Mexico, Chile and Peru will continue their tightening cycles over the coming months, and that Colombia’s will soon join the club. However, in general, we expect that inflation across Latin America will fall in 2022 as temporary factors (base effects linked to fuel prices, re-opening effects, supply shortages) unwind, bringing tightening cycles to an end within a year or so. A key risk is if the current high rates of inflation cause expectations to drift higher, which may prompt central banks to press on the brakes more aggressively than we currently anticipate.

19 August 2021
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