Itaú BBA - Evening Edition – Core inflation decelerates in Mexico

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Evening Edition – Core inflation decelerates in Mexico

May 23, 2019

Core CPI came in at 0.09% (from 0.13% a year ago), pressured by tradable prices, while core services decelerated.

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CPI posted a bi-weekly rate of -0.30% in the first half of the month (from -0.29% a year ago), in line with our forecast and below market expectations (-0.25%). Core CPI came in at 0.09% (from 0.13% a year ago), pressured by tradable prices, while core services decelerated. On an annual basis, headline and core inflation also decelerated slightly. Headline inflation decelerated to 4.43% in the first half of May (from 4.44% in the second half of April), still above the upper bound of the range around central bank’s target, with core CPI decelerating to 3.77% (from 3.81%). Assuming bi-weekly inflation in line with the 5-year median variation in the second half of May, we estimate seasonally-adjusted three-month annualized CPI at 5.75% in May (from 3.11% in April), and 3.79% (from 3.70% in April) for the core index. For 2019, we expect inflation at 3.6%. However, the lingering uncertainties surrounding Mexico’s economy continue to constitute upside risks for inflation (through a weaker currency).
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Tomorrow’s Agenda: At 10:00 AM, the national statistics institute (INEGI) will publish Q1’s GDP, which we expect to grow 1.1% yoy (from 1.7% in 4Q18), slightly below the flash estimate announced last week. INEGI will also publish March’s monthly GDP proxy (IGAE), for which we forecast a 0.8% yoy growth (from 1.1% in February). On external accounts, the Central Bank will publish Q1’s current account balance at 10:00 AM. We expect the current account deficit to remain narrow. At the same time, INEGI will announce April’s trade balance


Tax collection came in at BRL 139 billion in April, in line with our forecast (BRL 139 bn) and the market’s (BRL 138 bn). Tax collection increased 1.3% yoy in real terms in the month. The revenue related to corporate profits expanded 7.2% yoy in April, from 2.1% yoy in March. On the other hand, revenues related to consumption decreased 1.6% yoy in the period, while revenues related to wage bill dropped 0.9% yoy in real terms. Excluding revenues from the REFIS/PRT, tax collection increased 1.9% yoy in real terms, with the 3mma rate decelerating to 2.7% (from 3.7%), still a good pace but representing some weakening when compared to recent months. The central government primary result for April will be released next week, on Thursday.

According to FGV monthly survey, consumer confidence declined 2.9 p.p in May, to 86.6, the fourth consecutive drop. The negative result was driven both by the expectations index, which fell 3.7 p.p, and the current conditions component, which declined 2.2 p.p. This result is in line with the negative print from the industrial confidence preview released on Tuesday, which declined 1.6 p.p. in the same period.

Tomorrow’s Agenda: FGV’s retail confidence index for May will be released at 8:00 AM. May’s IPCA-15 inflation will be released at 9:00 AM, for which we forecast a 0.38% monthly increase, leading the 12-month reading to 4.96% (from 4.71% in April).


The trade balance posted a new surplus in April. The trade surplus reached USD 1.1 billion, compared with a deficit of USD 0.9 billion in the same month of 2018. The surplus exceeded our expectations (USD 900 million), but fell below the market consensus of USD 1.6 billion. The trade balance accumulated in 12 months jumped to USD 2.3 billion, from USD 0.8 billion in March. At the margin, the three-month cumulative and annualized surplus was USD 10.3 billion, up from the USD 9.0 billion registered in the quarter ended in March. Imports tumbled in April, highlighting the fragility of output stabilization many thought possible in the early months of the year. On the other hand, exports increased, driven by agricultural products. The adjustment of external accounts is on track. We expect weak currency and lower internal demand to lead to a trade surplus of USD 5.5 billion for 2019 (from a USD 3.8 deficit last year), followed by a major narrowing of the current account deficit to 1.2% of GDP (down from 5.4% in 2018).

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