Itaú BBA - Evening Edition – Inflation and job creation on focus next week in Brazil

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Evening Edition – Inflation and job creation on focus next week in Brazil

April 18, 2019

April’s IPCA-15 mid-month inflation will be released on Thursday. We expect a 0.69% increase in the period.

The Week Ahead in LatAm


April’s IPCA-15 mid-month inflation will be released on Thursday. We expect a 0.69% increase in the period, which would accelerate the accumulated inflation in 12 months to 4.68% (from 4.18%). Food at home and vehicle fuels may pressure the monthly print once again. Other than that, ANEEL will announce May’s electricity bill tariff flag on Friday. The announcement on the new tariff flag methodology for the electricity bill is also expected to happen in the upcoming week.

On economic activity, March’s CAGED formal job creation will probably be released next week (date not yet specified), for which we forecast a net creation of 44k jobs. Adjusting for seasonality, our forecast implies 40k formal jobs creation, leaving the 3-month s.a. moving average virtually stable at 42k. Going forward into 2Q19, the recent drop in business confidence indicates risks that formal job creation may decelerate to a pace below this 40k level estimated for March. Also, FGV’s confidence indexes for April on the industrial (preview), consumer, construction and retail sectors will be released throughout the week. These releases will be particularly important, given the strong declines observed in business confidence in March. 

Regarding the external accounts, we expect the current account (Thu.) to post a $500 million surplus in March 2019, above the $666 million deficit seen in the same month of 2018. This result is driven mostly by a smaller income deficit. Over 12 months, we expect the current account deficit to slide to USD 13.7 bn (stable at 0.7% of the GDP) and the 3-month seasonally adjusted moving average to increase to a USD 15.5 bn deficit. Direct investment in the country will likely amount to USD 7.3 billion in March, leading the 12-month reading to USD 89 billion (4.7% of GDP).

On the fiscal side, tax collection for March may come out during the week. We expect a BRL 112.7 bn result (2.1% yoy real increase).

Regarding the political front, the expected schedule for the current week got postponed, and now the Lower House’s Constitutional and Justice Committee is expected to vote the pension reform report next Tuesday.


On Monday, the treasury will publish the federal fiscal accounts for March 2019. We estimate that the 12-month rolling primary deficit totaled 2.4% of GDP, down from 2.6% in January 2019. The zero-primary deficit budget for this year is based on increasing revenues (through export taxes and the sale of public pension fund assets) and reducing expenditures (transfers to provinces, energy subsidies and capital spending). Although a sharp reduction of the fiscal deficit is likely, it will be challenging for the treasury to meet the zero-primary-deficit target for 2019.

The trade balance for March will come out on Wednesday. A weak currency and contracting internal demand are leading to trade surpluses. We forecast a surplus of USD 500 million in March (versus a USD 550 million deficit registered in the same month of 2018). 


The central bank will publish the trade balance for the month of February on Monday. In January a large trade deficit was recorded as low oil prices continued to hamper exports. We expect a trade deficit of USD 683 million (USD 548 million deficit last year; USD 1.0 billion in January), as industrial material imports weaken and the oil price drag moderates.

Also on Monday, the coincident activity indicator (ISE) for the month of February will be released. In January, ISE grew a surprisingly weak 2.2% (1.0% in December), resulting in growth of 2.4% for the rolling quarter. For February, we expect some improvement with the non-calendar adjusted series growing 2.9% yoy, driven by retail sales.

Think-tank Fedesarrollo will publish Industrial and Retail confidence for the month of March on Thursday. In February, both industrial and retail confidence remained upbeat, improving from one year ago, a favorable development for activity ahead. 

On Friday, the central bank will hold its third monetary policy meeting of 2019. With sluggish activity, subdued inflation pressures and a looser global monetary policy, we expect no change of the status-quo, keeping rates on hold at 4.25%.


On Tuesday, INEGI will announce March’s unemployment rate. We expect the unemployment rate to post 3.4%. According to data reported by the Mexican Institute of Social Security (IMSS), formal employment decelerated to 2.8% year-over-year in March (from 3.1% in February).

In the middle of the week, INEGI will publish CPI for the first half of April. We expect bi-weekly CPI to fall by 0.19% (versus -0.34% a year ago), pulled down by a sharp decline in electricity prices due to seasonal subsidies. Regular gasoline prices are also expected to exert downward pressure on CPI (reflecting the MoF subsidy to gasoline prices). Assuming our forecast is correct, headline CPI would accelerate to 4.22% year-over-year (from 4.06% in the second half of March).

On Thursday, the statistics institute (INEGI) will announce February’s retail sales. We estimate that retail sales grew 0.6% year-over-year, from 0.9% in January. Private consumption indicators have shown growth rate moderation, consistent with the recent weakening in the labor market. Moreover, we expect retail sales to be affected directly by gasoline shortages (occurred from December 2018 to February 2019) due to lower gasoline sales and, indirectly, as access to stores became more difficult. However, recent real wage increases are a buffer for private consumption, sustaining real wages.

Ending the week, INEGI will also publish February’s monthly GDP proxy (IGAE), which we forecast at 0.9% year-over-year (after growing 1.3% in January). It is already known that industrial production fell 0.8% year-over-year in February, dragged by the mining sector (falling oil output), while the manufacturing sector decelerated. 

On the same day, INEGI will announce March’s trade balance. Manufacturing exports likely slowed down, reflecting weaker external demand. In turn, we expect non-oil imports also deteriorated, reflecting some deceleration of internal demand.

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