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Inflation surprises to the upside in Chile

April 9, 2019

Overall, the still-low inflation, looser policy stance by the Fed, and risks to global growth suggest there is no haste to remove stimulus in the near term.

Talk of the Day

Chile

Inflation surprised to the upside in March, the first such case since the introduction of the new consumer basket. Consumer prices rose 0.5% from February (0.2% one year ago), higher than the 0.4% market consensus and our 0.3% call. As a result, annual inflation increased to 2.0% (the lower bound of the range around the central bank’s 3% target), from 1.7% in February. Our diffusion index showed a moderation in downside inflationary pressures, in line with the view that low inflation is transitory and the path toward the target would unfold. The increase in education prices explained most of the surprise in our call. Energy and food inflation gathered steam in the month, but core inflation was stable. We expect inflation to continue to pick-up throughout the year, but to still end below the 3% target. We see inflation of 2.6% (in line with 2018), with further normalization to 2.9% next year. Overall, the still-low inflation, looser policy stance by the main central bank globally, and risks to global economic growth suggest there is no haste to remove stimulus in the near term.
** Full story
here.

On external accounts, in the first quarter of the year, the still-weak mining exports was offset by a widespread import slowdown. March’s trade balance registered a USD 607 million surplus, broadly in line with one year earlier, yet the surplus in the first quarter of the year moderated to USD 1.9 billion (USD 3.0 billion in 1Q18). As a result, the rolling 12-month trade surplus dropped to USD 3.6 billion (USD 4.7 billion in 2018). However, our seasonally adjusted series shows a USD 4.4 billion (annualized) trade surplus in the quarter, an improvement from USD 2.5 billion in 4Q18 that was hampered by low global copper prices. Mining exports remain the key export drag, contracting 7.6% in March, but the industrial dynamics also reflect the slowing global economy. For 1Q19, total exports contracted 5.1% yoy (from -0.1% in 4Q18), with all main components declining. Imports shrunk in March (-4.9%), for the first time since October 2016. Declining consumer, capital and energy imports led the deterioration in the month. During 1Q19, import growth slowed to 0.3%, from 23.3% in 4Q18, with the moderation still headlined by energy imports, but capital imports showed its first signs of moderation after several quarters of double-digit growth. As we expect domestic demand to expand at a decent pace and growth among trade partners moderates, we expect the current account deficit to remain wide this year, at 3% of GDP (3.1% in 2018).
** Full story
here.

Mexico

Gross fixed investment (GFI) surprised to the upside in January, but remained weak in the quarter ended in the month. The monthly GFI increased to 1.6% yoy, above our forecast of -1.3% and market expectations (-2.0%). According to calendar adjusted figures, GFI increased at a similar rate (1.5% yoy, from -6.4% in December), taking the three month moving average growth rate to -2.7% yoy in the quarter ended in January (from -2.5% in December). At the margin, GFI also remained weak in the quarter ended in January. With seasonally adjusted figures, the qoq/sa annualized rate stood at -4.9% in the quarter ended in January (from -10.9% in December). 

On another note, private consumption expanded at a below trend pace in the quarter ended in January. The monthly proxy for private consumption increased to 2.3% yoy (from 0.4% in December), taking the three month-moving average to 1.7% in the quarter ended in January (from 1.1% in December). Although retail sales accelerated in the quarter (compared to last month), it grew at a below trend pace. Using calendar-adjusted data reported by the Nation Statistics Institute (INEGI), private consumption grew at a similar rate, taking the 3mma growth rate to 1.7% (from 1.4% in December). At the margin, private consumption accelerated, but remained soft in the quarter ended in January. Using seasonally-adjusted figures, private consumption increased 0.3% mom in the period (from 0% in December), taking the qoq/saar growth rate to 1.1% in the quarter ended in January (from -1.5% in December).

We expect economic activity to slow to 1.4% in 2019 (from 2.0% in 2018). Uncertainty over domestic 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. In this context, employment is weakening. However, recent real wage increases are a buffer for activity. Lower inflation and minimum wage increases, amid a still-tight output gap, are the factors boosting real wages.
** Full story
here.

Day Ahead: At 10:00 AM, INEGI (statistics institute) will publish the CPI inflation data for March. We expect the rate to come in at 0.38% mom, from 0.32% a year ago.

Brazil

The BCB released its weekly market participants survey (Focus), once again with no major changes to the outlook. According to the survey, the median forecasts for GDP growth for 2019 remained virtually flat at 1.97% (from 1.98%), while it has receded for 2020, to 2.70% (from 2.75%). For 2021, growth expectations remained stable at 2.50%. The median of IPCA inflation forecasts for 2019 also remained virtually flat at the 3.90% level (from 3.89%). Inflation expectations for 2020 (4.00%) and 2021 (3.75%) did not change, and are in line with the BCB’s inflation targets for each respective year. The year-end Selic rate did not change for the three years horizon (2019-2021): at 6.50% for 2019, 7.50% for 2020 and 8.00% for 2021. The median of the forecasts for the exchange rate also remained stable for the three years horizon (2019-2021): at BRL 3.70/USD for 2019; at BRL 3.75/USD for 2020; at BRL 3.80/USD for 2021.

Day Ahead: On economic activity, February’s retail sales will be released at 9:00 AM. We forecast a 0.7% mom/sa decline in core retail sales and a 1.0% drop in the broad segment (which includes vehicle sales and construction material), leading the year-over-year rate to 2.4% and 7.1% respectively.



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