Talk of the Day
Brazil
Today, the Senate approved Gabriel Galípolo for the Central Bank’s presidency. 66 senators approved Galípolo’s nomination, while 5 voted against it. The approval in Senate’s plenary occurred after approval by the Economic Affairs Committee, which also held a confirmation hearing. Galípolo, which is currently the Central Bank’s Director of Monetary Policy, will begin his four-year term at the head of the institution in January of 2025.
Macro Vision: Potential impacts of the drought in Brazil on GDP and inflation. We are experiencing the worst drought in recent years, especially in the northern and central-western regions, which are the main producers of soybeans, corn, and cattle. If the drought persists until the end of the year, we may face delays in soybean planting and consequently in the planting of the second corn crop. Looking at previous episodes, such as the 2020/21 harvest, the most significant impact was on the corn crop, which suffered a 20% drop. Another impact of the drought has been on hydroelectric power generation. Although the possibility of rationing still seems distant (the system is currently more diversified and integrated than in 2001), we are already observing price impacts with costlier tariff flags. **Full story here.
Tomorrow’s Agenda: IPCA inflation for September will be released at 9:00 AM BRT. We estimate a 0.46% mom increase leading the annual rate to 4.4%, from 4.2% in August. Adding to the headline figure, the composition will likely show underlying services decelerating to 4.9% 3mma saar (from 5.4% in August), while underlying industrial is expected to accelerate to 3.9% (from 2.7% in August).
Chile
Volatile foods drive a large downside inflation surprise in September. Consumer prices increased 0.09% from August to September, well below the central bank’s analyst survey (0.4%), the market consensus (0.3%), market pricing (0.27%), and our call of 0.26%. The most notable increases were in clothing and footwear, household equipment and maintenance, while food and non-alcoholic beverages contracted. With the monthly increase, annual inflation in the reference series reached 4.0% YoY (from 4.6% in August). CPI excluding volatiles rose by 0.3% MoM (0.2% in September last year; 0.1% MoM in August), with core goods rebounding (0.5% MoM) and core services more contained (0.2%). On an annual basis, core CPI reached 3.8% (reference series) from 3.7% in the previous month. Volatiles fell by 0.3% MoM, dragged by energy prices (-1.4%) and foods (-0.8%). The downside surprise to our headline CPI forecast was concentrated in the decline in food prices, despite the national independence holidays. Meanwhile, domestic transportation-related prices expectedly rose (interurban bus travel: +16.4% mom). While the downside surprise was led by volatiles, core price dynamics are only gradually edging up, insufficient to detract from the view that the central bank will continue to cut rates ahead.
Anchored inflation expectations, and the lagged effect of a still-contractionary monetary policy will support the disinflation process. We see inflation of 4.5% this year, as upside electricity risks and past CLP depreciation pressures are offset by widespread retail sales events. We expect inflation to fall to 3.3% next year. Nevertheless, geopolitical developments in the Middle East that keep global oil prices elevated, disrupt supply-chains and pressure the CLP, pose risks towards a slower disinflation process. For October, we preliminarily expect a 0.6-0.7% increase with a rebound in volatile prices and a large electricity price adjustment (15%). Yet, the effect of retail sales events at the start of the month and the possibility that the implementation of higher energy prices is delayed to November pose downside risks to the call. **Full story here.
Ministry of Finance draws on the Stabilization Fund for the third time this year. In a press statement (link), the MoF reported another withdrawal from the Stabilization Fund totaling USD1 billion, the third withdrawal this year, which takes total withdrawals in 2024 to roughly USD2.4 billion. As of the end of August, prior to the announced withdrawal, the Stabilization Fund’s AUM reached USD4.7 billion, approximately 1.4% of GDP, well below the IMF’s recommended threshold for Chile of 5-7% of GDP. After the withdrawal, we estimate the Fund fell to roughly USD3.7 billion, the lowest level since December 2021 (USD2.5 billion). The withdrawals have taken place as fiscal revenues have been significantly below the mark, and fiscal spending has been front-loaded throughout the course of the year, leading to critically low cash levels at the Treasury, even though the MoF issued roughly USD14 billion in gross debt in the year through September. We had anticipated the risk of additional withdrawals from the Stabilization Fund considering critically low cash levels at the Treasury (see our most recent note), as the MoF faces sizable maturities in local currency debt (roughly USD3.8 billion through year-end), and the seasonal widening of the deficit in Q4. The stress in Chile’s fiscal accounts suggests a replenishment of the Stabilization Fund is highly unlikely over the following years, as a miss of this year’s fiscal deficit target is the most likely scenario. Resources from the recent withdrawal are to be sold by the MoF in the local market, in line with the guidance of USD200 million per week.
Colombia
Disinflation process continued in September, as services stickiness persists. Consumer prices rose by 0.24% from August to September, slightly below the market consensus of 0.26% and our 0.28% call. The main positive contributors in the month were education (+1.9% MoM; +8bps), housing and utilities (+0.2% MoM; +5bps), restaurants and hotels (+0.5% MoM; +5bps) and transport prices (+0.2%; +3bps). Meanwhile, food prices increased by a mild 0.1%, contributing 2bps to the headline CPI print and reflecting a moderate effect of the transportation strike during the first week of September. Housing and food prices explained most of the surprise relative to our forecast, partially countered by higher education prices. Consumer prices excluding food rose 0.27% MoM (+0.49% one year earlier), while inflation excluding food and energy rose by 0.41% (core; 0.42% one year earlier). Overall, annual headline inflation fell by 31bps from August to 5.81%, while core inflation remained broadly stable from 6.09% to 6.08% (10.60% peak in April last year).
Despite the transportation strike at the beginning of September, food inflation did not respond. Our preliminary estimate for October’s CPI, to be released on November 8, is between 0.2% and 0.3%, resulting in annual inflation remaining broadly stable at 5.8%. We expect a YE24 CPI at 5.6%, with some upside risks remaining, particularly from energy prices in the face of low reservoir levels and the stickiness of rent prices. Nevertheless, with inflation continuing to fall, we believe that BanRep will accelerate the cycle to 75bps at the next MP on October 31. Nevertheless, the recent tightening of global financial conditions amid heightened geopolitical risks means we cannot rule out another 50bps. **Full story here.
Uruguay
BCU on hold, as widely expected. In today’s monetary policy meeting, the central bank’s monetary policy committee decided to keep the policy rate at 8.50% (unchanged since April). The decision was in line with our call and consensus according to the central bank's survey. The decision aims to consolidate the continued decline in inflation and its 4.5% target in the Monetary Policy Horizon (MPH). In the press release, the central bank stated that the average of inflation expectations stood at 5.88%, lower than the previous quarter (6.06%), highlighting that this is the first time that the average of expectations enters between the inflation target range (4.5%, with a tolerance range of 1.5% upwards or downwards). Thus, we estimate that the real ex-ante policy rate stands at 2.5% (using expectations for the monetary policy horizon), in line the BCU’s neutral real rate estimate of 2.5%, keeping the monetary policy around neutral levels.
We do not expect changes in the monetary policy rate for the rest of the year. The next monetary policy meeting is scheduled for November 14.
Argentina
Manufacturing and construction were mixed sequentially in August. The IPI manufacturing index rose by 1.5% mom/sa in August, increasing for the second consecutive month. Thus, industry output rose by 2.7% qoq/sa in August, following a 2.7% contraction in 2Q24. On an annual basis, manufacturing fell by 6.9% in August, and by 10.9% in the quarter ended in that month. Only food and beverages expanded annually in August. According to the INDEC survey, only 16% of companies expect an annual increase in internal demand over the next three months, 43.6% expect a decline and 40.4% foresee no changes. In contrast, The construction index fell by 2.9% mom/sa in August, interrupting a string of five consecutive gains. Thus, construction rose by 12.2% qoq/sa in August (-5.5% qoq/sa in 2Q24). Construction activity contracted by 26.4% yoy in August and dropped 27.3% yoy in the quarter ended in that month. Employment in the sector contracted by 17.3% relative to July 2023 (figures have a one-month lag). According to a qualitative survey, 66.4% involved in private construction anticipate no changes in activity levels over the next three months. Meanwhile, 8.8% anticipate a decline, while only 24.8% expect an increase. Among companies primarily engaged in public works, 28.7% anticipate a decrease in activity levels during the September-November 2024 period, while 56.5% anticipate no change and 14.8% anticipate an increase.
Our 2024 GDP growth forecast stands at -4.0%. While construction data disappointed in August, we expect a sequential recovery starting in 3Q24. In our view, the recovery of real wages should support private consumption over the rest of the year.
Mexico
Tomorrow’s Agenda: INEGI is scheduled to publish the CPI for the full month of September. We expect a monthly advance of 0.12%, which would take annual inflation to 4.65%.
