Itaú BBA - Inflation ends 2018 at 3.75% in Brazil

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Inflation ends 2018 at 3.75% in Brazil

January 14, 2019

For January, our preliminary estimate for the IPCA is a 0.42% increase, which would lift the year-over-year rate to 3.9%

Talk of the Day
 

Our LatAm Macro Monthly report was published on Friday, featuring scenarios for Brazil, Mexico, Argentina, Chile, Colombia, Peru, the global economy and commodities.
** Full story here.

Brazil

The consumer price index IPCA rose 0.15% in December (after a 0.21% drop in the previous month), printing slightly above the median of market estimates (0.12%) and below our forecast (0.20%). Personal care items were behind the biggest deviation from our call, going up just 0.3% after plummeting 4.7% in November.

With this latest reading, the IPCA ended the year with a 3.75% increase, larger than the 2017 change (2.95%), but with plenty of room vs. the target set for the year (4.5%). For January, our preliminary estimate for the IPCA is a 0.42% increase, which would lift the year-over-year rate to 3.9%.
** Full story
here. 

Mexico

On an annual basis, industrial production (IP) decreased in November, dragged by all sectors.  IP grew -1.3% yoy (from 1.0% in October), below our forecast (-0.7%) and median market expectations (0.5%). Adjusted by calendar effects, IP growth rate was similar (-1.0% yoy, from -0.1% in the previous month), taking the three-month moving average (3mma) growth rate to 0.5% yoy in November (from 0.9%).

We expect economic activity to slow to 1.7% this year, from an expected 2.0% in 2018. Uncertainty over the new administration’s policy direction and remaining uncertainties over the approval of NAFTA by the U.S. Congress will continue to weight on investment. Deceleration in the U.S. economy will also curb growth. However, growth in the U.S. is at a decent pace and a still-solid labor market will likely prevent growth from slowing too much, although we acknowledge that risks are tilted to the downside.
** Full story here.

Day ahead: The Statistics Institute (INEGI) will announce October’s gross fixed investment, which we expect to improve to 3.1% yoy (from -0.9% in September). On an annual basis, the coincident indicators expanded at a decent pace (imports of capital goods: 6.8%; business confidence: 6.6%). In turn, construction output improved (1.42%, from -0.46%).

The Week Ahead in LatAm

Argentina

On Tuesday, the INDEC (the official statistical agency) will publish the National CPI for December. Price-tracker consulting Elypsis estimates a 2.3% mom increase in consumer prices, the lowest reading since May, as a result of a tighter monetary policy that led to some appreciation of the exchange rate. If the forecast is correct, annual inflation would have reached 47.3% in 2018. 

On Thursday, the treasury ministry will publish the federal fiscal accounts for December. According to our estimations, the 12-month rolling primary deficit posted in November was 2.5% of GDP. We forecast a deficit of 2.6% of GDP, slightly below the 2.7% target for the year. For 2019, the Congress passed a budget that targets a zero primary deficit, in line with the agreement with the IMF.   

Brazil

The market will remain focused on the news flow about the pension reform and the election for Lower House and Senate speakers, scheduled for early February.

On the macro data side, economic activity data will be the highlights. We forecast a 0.9% mom/sa increase for core retail sales (Tue.) and a 0.7% gain in the broad segment (which includes vehicle sales and construction material). For the Service Sector Survey PMS (Wed.), our forecast (conditional to retail sales) points to a 0.5% yoy increase. Also, the BCB will release its monthly activity index (IBC-Br) for November on Thursday, for which we expect, for the time being, a 0.2% mom/sa increase. Finally, paper cardboard dispatches (ABPO), an indicator related to December’s industrial production, will probably come out (without a specified date).

Colombia

On Wednesday, think-tank Fedesarrollo will release its consumer confidence index for December. Consumer confidence in November registered the lowest level since March 2017, and was the lowest November recording amid the advancement of tax reform plans that initially (before revisions) planned to raise VAT on the sale of food staples. Consumer sentiment came in at -19.6%, a significant fall from -10.0% the same period last year. The retreat from November 2017 was mainly explained by consumers’ one year expectations. With final version of the tax reform not being as harsh on consumers as initially thought, confidence may recover in coming months (particularly as inflation stays low and monetary policy remains expansionary), aiding activity recovery next year.

On Friday, activity indicators for the month of November will be published. In October, the activity recovery advanced with retail sales and manufacturing surprising to the upside. Retail sales increased 6.5% in October (5.9% in September), lifted by car and motorcycle sales. The 5.8% manufacturing rise in October (2.9% in September) with oil refining contributing favorably. For November, we expect industrial production to rise a still firm 5.0% yoy, while strong auto sales in the month point at still robust retail sales growth of 6.8% in twelve months, aided overall by low inflation, an expansionary monetary policy, albeit lower confidence could be a drag.

Mexico

Beginning the week, the Statistics Institute (INEGI) will announce October’s gross fixed investment, which we expect to improve to 3.1% yoy (from -0.9% in September). On an annual basis, the coincident indicators expanded at a decent pace (imports of capital goods: 6.8%; business confidence: 6.6%). In turn, construction output improved (1.42%, from -0.46%).

Peru

On Tuesday, the statistics institute (INEI) will announce November’s GDP proxy. We estimate that the GDP proxy accelerated to 5.2% yoy, from 4.2% in October. Looking at the natural resources sectors, we expect November’s figure was boosted by a substantial increase in the fishing output due to a base effect (last November the fishing season of anchovy was suspended), supporting, in turn, primary manufacturing (mainly fish flour). Likewise, we expect agriculture output accelerated at a decent pace. On the non-natural resources side, we expect the construction sector accelerated (as public investment execution catches up), while non-primary manufacturing and services continued to support economic activity. 



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