Talk of the Day
Peru
In its November meeting, the Central Bank of Peru (BCRP) cut the policy rate by 25 bps to 5.00%, in line with market consensus. In contrast to previous communiqués, the statement explicitly mentions that the decision takes the real rate close to neutral and does not imply a cycle of successive cuts. The statement repeated the data dependent guidance, keeping the door open for further rate adjustments depending on inflation (emphasizing the core index) and its determinants. Twelve-month inflation expectations remained slightly below 2.5% in October, which would take the one year real ex-ante rate to roughly above 2.50%, edging closer to the 2.0% neutral real rate. The next monthly monetary policy meeting is scheduled for December 12.
Brazil
Day Ahead: IPCA inflation for October will be released. Our estimate point to 0.58% mom increase, pressured by proteins and underlying services (reflecting the reversal in the cinema tickets discounts and vehicle insurance prices). This will lead the annual rate to 4.8%, from 4.4% in September. Adding to the headline figure, the composition will show underlying services accelerating (to 5.1% 3mma saar, from 4.7% in September), but some deceleration in underlying goods (to 2.5%, from 2.9%).
Colombia
Day Ahead: October’s CPI will be released. We expect inflation at 0.15% MoM in October (0.25% one year ago), corresponding to a 5.71% yoy (falling 10bp from September’s print), given lower-than-expected energy prices and still favorable food price dynamics. Moreover, we forecast Core CPI (ex -food) at 0.18% (6.14% in annual terms). By groups, housing would be the main contributor but countered by energy prices. Therefore, we predict housing at +0.27% from September (+0.18% in the previous month), contributing 9bps to the monthly result. Meanwhile, we expect the food component to remain flat in October, but with a downside bias. Lastly, air tickets are projected to boost transport prices in October. We expect transportation to increase by 0.2% MoM (0.24% in September), contributing 3bps to the total print.
Mexico
October’s headline inflation came in slightly higher than market expectations, but core CPI was better than expected. The October’s CPI for Mexico advanced 0.55% MoM, slightly higher than the median of BBG’s market expectations (0.53%) and our call (0.50%). In YoY terms, the index accelerated to 4.8% from 4.6% in the previous month. Core CPI metric increased 0.28% MoM, better than the market expectations (0.33%). In YoY terms, core CPI oscillated to 3.8% from 3.9% in September.
Chile
The BCCh’s “Beige Book” shows less weak activity in the context of stable prices. The BCCh’s quarterly Business Perceptions Report (known as IPN for its Spanish acronyms) shows that although activity is weak, firms report a sequential improvement with respect to the second quarter, in the context of stabilizing costs. Firms have kept the workforce unchanged at a lower level than in the past. The labor market is still loose, but certain high-skilled jobs remain challenging to fill. Financial conditions remain restrictive but have improved at the margin. Interest rates have fallen, but to a limited extent. For its part, banks indicate that their risk assessments remain strict. In the short term, companies expect a moderate increase in both sales and prices with margins that would stop narrowing. Loan demand going forward continues to be softer than in the past. The share of companies that plan to make investments in 2025 is increasing compared to comparable outlook one year ago. Among companies that report no investments for the next year, weak demand is established as the main reason, with a decrease in economic or political uncertainty as reasons for not investing. The next IPN is scheduled to be published in February.
BCCh’s proxy for labor demand rebounded slightly in October. The BCCh’s labor demand proxy for the month of October rose to 69.76 from 54.6 in September, but remaining well below the historical average (2017-2019 average of 91.6). On annual basis, the labor demand fell again, by 1.1% YoY (-16% in September). Weak labor demand suggests further improvement in the formal labor market appears challenging, as INE’s survey-based data has also shown a deterioration in job creation in recent months. Labor market dynamics are reflecting some loosening that is likely in response to softer activity dynamics and the implementation of legislation that has raised the cost of labor.
Real wages rose sequentially again in September. According to the National Institute of Statistics (INE), survey-based real wages rose by 0.6% MoM/SA in September, accelerating sharply from 0.3% MoM/SA in August. In annual terms, real wages rose by 3.5% YoY (3.4% in August), well above the 1.9% YoY 2016-2019 average, likely reflecting recent minimum wage hikes and periodic wage adjustments. In nominal terms, wages rose by 0.7% MoM/SA and 7.8% YoY. With inflationary pressures that remain high amid electricity price adjustments, higher labor market participation, and low labor demand, real wage growth is likely to slow.
Traders expect a 25bp cut to 5% in December, while inflation expectations are unchanged. The central bank's survey of financial operators foresees CPI rising by 0.6% from September to October (Itaú: 0.65%). The one-year outlook remained at 3.5%, while the key two-year expectation is anchored to the 3% target for the fifth consecutive survey. Regarding monetary policy, a 25bp cut to end the year at 5% (87% of respondents; in line with the previous result). The cycle is seen reaching 4.25% in twelve months (unchanged). Traders interpreted the October communiqué and minutes to have held a neutral stance, in line with our iSent data. While activity and inflation have unfolded in line with the 3Q IPoM scenario, increased financial market volatility and its impact on inflation expectations will be an area worth monitoring. We expect the Board to continue with the 25bp rate cut pace next month to 5%.
Day Ahead: the National Institute of Statistics (INE) will publish October’s inflation . We estimate consumer prices to rise 0.7% from September, and 4.4% YoY. Market prices are at 0.64%. In addition, we estimate Core CPI at 0.06% MoM, corresponding to a 4.0% YoY. Upside pressure in the month were be concentrated in a near 20% electricity price hike, along with a rebound in volatile food prices. Containing the increase would be CyberDay-related declines in apparel and electronics, along with falling gasoline prices.
Argentina
Manufacturing continued to increase sequentially in September. The IPI manufacturing index rose by 2.6% mom/sa in September, increasing for the third consecutive month. Thus, industry output rose by 7.9% qoq/sa in September, following a 2.5% contraction in 2Q24. On an annual basis, manufacturing fell by 6.1% in September, and by 6.1% in 3Q24. All sectors dropped in September on year-over-year basis, with the exception of food and beverages and furniture and other manufacturing industries. According to the INDEC survey, only 20% of companies expect an annual increase in internal demand over the next three months, 39.4% expect a decline and 40.6% foresee no changes.
Construction also expanded sequentially in 3Q24. The construction index rose by 2.4% mom/sa in September, after falling in August. Thus, construction rose by 10.9% qoq/sa in September (-5.4% qoq/sa in 2Q24). Construction activity contracted by 24.8% yoy in September and dropped 23.7% yoy in 3Q24. Employment in the sector contracted by 17.5% relative to August 2023 (figures have a one-month lag). According to a qualitative survey, 69.7% involved in private construction anticipate no changes in activity levels over the next three months. Meanwhile, 16.5% expect an increase, while 13.8% anticipate a decline. Among companies primarily engaged in public works, 34.3% anticipate a decrease in activity levels during the October-December 2024 period, while 51% anticipate no change and 14.7% anticipate an increase.
Our GDP growth forecast for 2024 is -4.0%, with upside risks given a higher-than-expected recovery in the activity in 3Q24.
