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Brazil’s inflation expectations, commodity exports

Brazil's central bank made it clear at its meeting this week that it will continue to hike rates aggressively until inflation expectations come down which, based on past form, will occur when actual inflation drops back. We expect that this will happen around Q2 next year. Otherwise, data this week showed a strong rise in Chinese commodities imports which bodes well for Latin American producers, but we doubt that the external backdrop will remain favourable over the coming quarters.
William Jackson Chief 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 William Jackson

Emerging Markets Economics Chart Book

Omicron not yet swaying EM central banks

The latest EM central bank meetings confirmed that policymakers in Emerging Europe and Latin America are still focused on high and rising inflation, rather than any downside risk to the economic outlook from the Omicron variant. Central banks in Brazil, Hungary, Poland and Peru tightened monetary policy aggressively this week, and we expect that policymakers in Russia, Chile and Colombia will follow suit next week. Lower inflation in much Asia gives policymakers there more leeway. If anything, the Omicron variant reinforces our view that interest rates in most of Asia will stay low for longer than most currently anticipate.

10 December 2021

Latin America Data Response

Brazil IPCA (Nov.)

The slightly softer-than-expected Brazilian inflation figure, of 10.7% y/y, isn’t going to stop Copom from hiking the Selic rate by another 150bp (to 10.75%) when it meets in early February. But it does provide a sign that inflation is stabilising a bit sooner than most analysts had expected, and supports our view that the tightening cycle won’t have much further to run after the February meeting.

10 December 2021

Latin America Economics Update

Brazil: chunky rate hikes to go on despite recession

Brazil’s central bank gave a clear steer that, even though the economy entered recession in Q3 and shows little sign of growth in Q4, it will follow the 150bp hike in the Selic rate yesterday (to 9.25%) with further aggressive tightening. We now think that the Selic rate will reach 11.50% by early 2022.

9 December 2021
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