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Mexico Bi-Weekly CPI (May)

While Mexico’s headline inflation edged down to 7.6% y/y in the first two weeks of May, this will provide little comfort to the central bank as price pressures remain stubbornly strong. The risks are still skewed towards Banxico becoming more aggressive and delivering a 75bp rate hike at its next meeting in June. LatAm Drop-In (26th May, 10:00 ET/15:00 BST): Join our 20-minute briefing about Colombia’s election and other regional political and fiscal risks – including Lula vs Bolsonaro in October. Register here.
Nikhil Sanghani Emerging Markets Economist
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Latin America Chart Book

High inflation fuels strikes and protests

High inflation seems to be causing growing unrest in the region, which threatens to be economically disruptive and raise fiscal concerns. Recent protests in Ecuador have hit its oil sector hard, while truck drivers in Peru are about to embark on a strike. Elsewhere, Brazil’s government is seeking to stave off possible unrest among truck drivers with higher benefits, while Mexico’s last month sought to freeze the prices of some basic goods. It remains to be seen what impact all this will have. But the regions’ recent experience suggests that strikes and protests can hit output significantly. And higher public spending to cushion the blow to consumers and businesses will cause weigh on budget positions. EM Drop-In (Thurs, 7th July): Join our economists for their regular monthly briefing on the hot stories in EMs – and those that aren’t getting the attention they deserve. In this 20-minute session, topics will include the outlook for EM FX markets after the recent sell-offs. Register now.

28 June 2022

Latin America Economics Weekly

Petro reaction, Lula’s plans, hawkish central banks

Gustavo Petro’s win in Colombia’s presidential election has caused tremors in the country’s financial markets. While the appointment of a centrist finance minister could help to settle investors’ nerves, the global backdrop is turning increasingly unfavourable. In Brazil, Lula, the front-runner in the race for the presidency, unveiled policy plans that will, likewise, probably unnerve investors around the election there in October. Finally, the week was marked by further hawkish noises from central banks in the region. We’ve revised up our interest rate profile in Brazil and the upside risks to our interest rate forecast in Mexico are growing.

24 June 2022

Latin America Economics Update

Banxico’s tightening cycle shifts up a gear

The Mexican central bank’s shift to a 75bp interest rate hike yesterday (to 7.75%) and the hawkish language in the accompanying statement make another 75bp move at the next meeting in August a done deal. And the risks to our end-2022 interest rate forecast of 9.50%, which is already higher than most expect, are now skewed to the upside.

24 June 2022

More from Nikhil Sanghani

Latin America Data Response

Chile GDP (Q1)

The 0.8% q/q contraction in Chile’s GDP in Q1 suggests the economy is coming back down to earth after a stellar 2021, and there is a growing chance of a recession this year. Meanwhile, the current account deficit widened to a worryingly large 7.3% of GDP, making the economy especially vulnerable to a further tightening of external financial conditions.

18 May 2022

Latin America Economics Update

Colombia’s economy to beat expectations this year

The solid 1.0% q/q rise in Colombia’s GDP in Q1 suggests the economy came through the Omicron virus wave in good shape and, given the recent surge in oil prices, we expect above-consensus growth of 6.0% this year. That said, a possible victory for interventionist Gustavo Petro in the upcoming presidential elections may weigh on investment and growth further ahead. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

17 May 2022

Latin America Economics Weekly

Hikes, hikes, hikes

The hawkish tilt by Mexico’s central bank at its meeting yesterday, when it raised its raised its policy rate by 50bp (to 7.00%), suggests that Banxico may soon shift its tightening cycle into a higher gear. Elsewhere, Peru’s central bank also increased its policy rate by 50bp on Thursday, to 5.00%, and we expect a further 200bp of hikes in this cycle. Finally, the tightening cycle continued in Argentina yesterday with a 200bp rate hike and, with policymakers starting to take inflation targeting more seriously, we think that the central bank will gradually move real rates into positive territory in the coming quarters. EM Drop-In (17th May): Do current EM debt strains point to a repeat of the kinds of crises seen in the 1980s and 1990s? Join our special briefing on EM sovereign debt risk on Tuesday. Register now.

13 May 2022
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