Itaú BBA - Inflation decelerates in Mexico

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Inflation decelerates in Mexico

Abril 24, 2020

We now expect inflation to end 2020 at 2.9% (before we estimated inflation at 3.2%)

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Bi-weekly inflation in the first half of April was slightly below market expectations. Mexico’s CPI posted a bi-weekly rate of -0.72% in the first half of April, slightly below our forecast of -0.65%. The figure was dragged mainly by non-core food and energy prices, which posted a contraction of 0.78% and 8.49%, respectively. Meanwhile, core inflation printed at 0.20%, above market expectations (0.18%), but below our forecast (0.24%). 

On an annual basis, headline inflation slowed down sharply, driven mainly by lower gasoline prices, while core inflation also decelerated. Headline CPI decelerated to 2.08% year-over-year in the first half of April (from 2.79% in the second half of March), pressured down mainly by non-core energy prices (-15.36%, from -10.26%), associated to a fall in gasoline prices. Core inflation decelerated to 3.40% (from 3.60%), despite the tradables inflation accelerating to 4.02% (from 3.89%), given that services decelerated sharply (2.74%, from 3.29%), driven mainly by other services (2.21%, from 3.36%) due to the fall in tourism services prices (-14.0%) and air fare fees (-28.46%) amid the coronavirus outbreak. Still, core services excluding tourism services and airfares decelerated to 3.25% (from 3.39%).

We now expect inflation to end 2020 at 2.9% (before we estimated inflation at 3.2%). We expect low energy prices and widening of slack conditions to put downward pressure on inflation, offsetting the effects of the exchange rate depreciation. Lower headline and core inflation will likely help Banxico to ease monetary policy further. We see the policy rate at 4.5% before the end of this year. ** Full story here.

Retail sales grew at a weak pace before COVID-19. Retails sales expanded 2.5% year-over-year in February, above our forecast (1.6%) and slightly below market expectations of 2.8%. However, the figure was boosted by a positive calendar effect. In fact, according to figures adjusted by working days, reported by the statistics institute (INEGI), retail sales contracted 0.3% year-over-year (from 2.6% in January), taking the quarterly annual growth rate to 1.9% in February (from 2.6% in January). Looking ahead, we expect private consumption to deteriorate sharply in the first half of 2020 due to the negative impact of the coronavirus outbreak, recovering in the second half of the year. ** Full story here.


According to FGV’s monthly survey, industrial confidence (preview) plummeted 39.5 p.p. in April (to 58.0) – the lowest level since the beginning of the series – amid covid-19 pandemic. These figures come in line with those from the special survey conducted by FGV two weeks ago, where the industrial confidence posted a 39.0 drop. The breakdown shows that the expectations component declined 47.3 p.p. (to 48.9), while the current conditions component dropped 31.0 p.p. (to 67.8).  The survey was conducted between April 1 and 22 with 796 companies. The final industrial survey will be released next Wednesday (April 29). 

Coronavirus update: the latest official information from the Ministry of Health is that Brazil has 49,492 confirmed cases (up by 3,735, vs 2,678 yesterday), with 3,310 confirmed deaths (up by 407, vs 165 yesterday).

Day Ahead: March’s external accounts data will be released at 9:30 AM (SP Time).  We expect the current account to post a USD 0.2 billion deficit in March, below the USD 2.7 billion deficit observed in the same month of the previous year. Given the current scenario, international travel and remittances of profits and dividends deficits will probably post sharp declines. With this result, the current account deficit over 12 months would add up to USD 49.0 billion, or 2.7% of GDP. The 3MMA SAAR is set to slightly improve to a USD 54 bn deficit (from a USD 61 bn deficit previously). Direct investment in the country (DIC) will likely amount to USD 7.0 billion in the period, with the DIC over 12 months remaining broadly stable at USD 79.0 billion.

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