Itaú BBA - Lower-than-expected mid-month inflation in Brazil

Latam Talking Points

< Voltar

Lower-than-expected mid-month inflation in Brazil

Abril 28, 2021

April IPCA-15 below expectations. Underlying inflation a bit better than expected, with highlight for services

Talk of the Day

Brazil

COVID-19 update: The latest official information from the Ministry of Health is that Brazil registered a daily increase of 3,086 deaths (1,139 on the previous day) and 72,140 confirmed cases (from 28,636). The 7-day moving average of deaths decreased to 2,431, from 2,465 on the previous day. The total number of deaths now stands at 395,022, with 14,441,563 confirmed cases, which implies a 2.7% mortality rate. The estimated reproduction rate (R) is currently at 0.91 (from 0.89). According to state health departments figures, Brazil has vaccinated about 14.2% of its population (around 30.2 million individuals).

The mid-month consumer price index IPCA-15 climbed 0.60% in April, from 0.93% in March, printing below our estimate (0.67%) and the median of market expectations (0.66%). Lower-than-expected price changes in gasoline, bottled cooking gas, and auto services stood out when compared to our call. The year-over-year change in the IPCA-15 accelerated to 6.17% from 5.52% in March. Among underlying inflation metrics, core services increased 0.25% in the month while the year-over-year change advanced to 3.3% from 3.2%; the core measure in underlying industrial goods climbed 0.36% in April and picked up to 4.1% from 3.1% yoy. The average of core inflation measures tracked by the Central Bank rose 0.33% in the month and the year-over-year rate accelerated to 3.7% from 3.3%. Our preliminary forecast for the headline IPCA in April is at 0.36%. We expect increases of 0.55% in May and 0.18% in June, leading our 2Q21 estimate to 1.09% (vs. -0.43% in 2Q20, amid the pandemic’s deflationary impact). **Full story here.

According to FGV, retail and consumer confidence indicators rebounded in April. Retail confidence increased 11.6 p.p., to 84.1, partially recovering from the 18.5 drop registered in March. The index is currently 15.7 p.p. below the pre pandemic level of 99.8 (February 2020). The expectations component rose 17.1 p.p. (to 87.3), while the current conditions index increased 5.7 p.p. (to 81.6). Meanwhile, consumer confidence advanced 4.3 p.p. (to 72.5), after declining 9.8 p.p. in March, and is currently 15.3 p.p. below the pre-pandemic level (87.8). The breakdown shows that the expectations component increased 6.7 p.p. (to 79.2), while the current conditions index ticked-up by 0.5 p.p. (to 64.5). Overall, confidence indicators released so far have shown mixed results in April. Industrial confidence (final reading) will be released tomorrow, while services confidence will come out on Friday.

Following the approval of the budget for 2021, the administration issued a provisional measure reenacting the job retention program (BEm) for four months. The measure allows companies to lower employee salaries proportionally to reductions in working hours. The measure also authorizes employers to temporarily suspend labor contracts. Workers who have their salaries reduced or their labor contracts suspended, will receive a proportional payment of their employment insurance, to be subsidized by the federal government. The fiscal cost of the reenactment of this program is estimated at about BRL 10 billion, according to the Ministry of Economy, and is not subject to the spending cap.

Itaú Daily Activity Tracker: The index increased 1.9 points, to 88.6 (latest available data from Friday, April 23). The 7-day moving average declined 0.3 points, to 88.7. The indicator is 14.8 points up from the recent bottom seen on April 4, and is now 20.4 points below this year's highest level so far, registered in February 16. Compared to its lowest level (April 10, 2020), the index is currently 39.2 points up. See our report here.

Day Ahead: Caged formal job creation figures for March will be released during the day. The very short sample of the new series, since January 2020, makes it impractical to model and forecast the data.

Chile

COVID-19 update: The latest official information from the Ministry of Health is that Chile registered a daily increase of 45 deaths (119 on the previous day) and 4,158 confirmed cases (from 6,078). The 7-day moving average of deaths remained stable at 100. The total number of deaths now stands at 26,020, with 1,179,772 confirmed cases, which implies a 2.2% mortality rate. The estimated reproduction rate (R) is currently at 0.86 (from 0.99). According to the latest figures provided by the Department of Statistics and Health Information, Chile has vaccinated about 41.6% of its population (around 8.0 million individuals).

The Constitutional Court, in a 7-3 vote, struck down the admissibility of the government’s legal challenge against the congress’ sponsored 10% pension withdrawal bill. The decision surprised given the legal precedent from a ruling in the government’s favor in December. With the bill obtaining support above the 2/3 threshold in congress to override a presidential veto, Piñera announced that the initiative will be signed into law. Meanwhile, the government will submit a bill that incorporates the diverging aspects from its rebuttal proposal announced last Sunday. This includes making the withdrawn of monies taxable for the top 10% of the income distribution, creating a restitution mechanism which transitorily increases pension contributions funded by employers and the state to make up for the withdrawn savings, and establishing a one-time transfer for close to USD 280 to each of the 3 million contributors who drew their accounts to zero during the first two withdrawals. The materialization of a third withdrawal could result in a maximum outlay of USD 19 billion, in addition to the more than USD 37 billion paid out so far for the previous two rounds. We note that the event becomes even more concentrated in recipients that are less in need of immediate liquidity and hence is less likely to be spent right away. However, the government’s proposal of a transfer to those with no pension funds would partially counter such dynamics.

LatAm & EM

MACRO VISION – Will EM currencies benefit from high commodity prices? Since the onset of the COVID-19 crisis, international commodity prices have decoupled from the currencies of countries that export these products. The decoupling – which has been more marked for some currencies (BRL, CLP, and ZAR) than for others (RUB, COP, CAD, and AUD), even when adjusting for each country’s main exported items – is apparently related to temporary supply restrictions, the evolution of the pandemic/vaccination campaigns and the subsequent impacts on the outlook for the economic recovery and fiscal fundamentals of each country. In Brazil, the fiscal risks for the BRL remain high, but the increase in the Selic benchmark interest rate and expectations of record exports (aided by high commodity prices) should provide some support to the currency going forward. Although higher rates alone would not be enough to reverse the decoupling from global commodity prices, they should help prevent a steep depreciation, like that of the past year. We anticipate a slight exchange rate appreciation from current levels, to BRL 5.30/USD by year-end. **Full story here.

Mexico

COVID-19 update: According to the Johns Hopkins University, Mexico registered a daily increase of 166 deaths (94 on the previous day) and 1,143 confirmed cases (from 1,653). The 7-day moving average of deaths increased to 378, from 373 on the previous day. The total number of deaths now stands at 215,113, with 2,329,534 confirmed cases, which implies a 9.2% mortality rate. The estimated reproduction rate (R) is currently at 0.57 (from 0.81). According to the latest figures provided by the Secretary of Health, Mexico has vaccinated about 9.3% of its population (around 12.1 million individuals).

The monthly trade balance posted a deficit of USD 3.0 billion in March. The release came in below our forecast of a surplus of USD 3.4 billion and market expectations of a surplus USD 3.5 billion, taking the 12-month rolling trade balance to a surplus of USD 29.2 billion in 1Q21 (USD 34.5 billion in 4Q20). Manufacturing exports recovered in March, but it seems they are still partly affected by temporary supply shocks. Manufacturing exports recovered in March (3.7% mom/sa, from -3.6% in February) driven mainly by non-vehicle exports (6.3%). Meanwhile, non-oil imports posted a solid expansion in March (11.6% mom/sa), with capital (8.9%) and consumption (8.7%) imports improving strongly, likely associated to the easing of social distancing measures, while intermediate imports grew 12.3%. We expect the trade surplus to narrow slightly in 2021 relative to 2020, as the sharp narrowing observed in 1Q21 is temporary in our view. During the rest of the year, manufacturing exports are likely to expand at a solid pace, supported by the recovery in U.S. economic activity. In turn, we expect non-oil imports to grow at a more gradual pace, reflecting a less steep recovery in internal demand (compared with external demand). **Full story here.

Paraguay

The central bank (BCP) cut the GDP growth forecast for 2021 to 3.5%, from 4.0% previously. The BCP noted that the recent health crisis and slower-than-expected immunization of the population affected the outlook for economic activity. The significant increase in the number of people infected by COVID-19 and the slow progress of the vaccination campaign have heightened the uncertainties surrounding the future dynamics of the economy, particularly of the service sector. The BCP lowered the inflation forecast for 2021 slightly, to 3.8% (from 3.9% in the previous report), in line with lower expected GDP growth. Regarding risks, COVID-19 remains the main source of concern. The report noted that global growth forecasts have improved, but uncertainties remain, given that the economic outlook is highly dependent on the containment of the pandemic. A longer health crisis would reduce the fiscal room for countries to implement countercyclical measures to mitigate the adverse economic effects of the crisis. Domestically, the spread of COVID-19 and the slow vaccination process are the main risks due to the potential impact of new mobility restrictions on various activities.

Argentina

COVID-19 update: The latest official information from the Ministry of Health is that Argentina registered a daily increase of 512 deaths (443 on the previous day) and 25,495 confirmed cases (from 18,793). The 7-day moving average of deaths increased to 401, from 373 on the previous day. The total number of deaths now stands at 62,599, with 2,905,159 confirmed cases, which implies a 2.2% mortality rate. The estimated reproduction rate (R) is currently at 0.84 (from 0.78). According to the latest figures provided by the government, Argentina has vaccinated about 14.1% of its population (around 6.3 million individuals).

Colombia

COVID-19 update: The latest official information from the Ministry of Health is that Colombia registered a daily increase of 448 deaths (465 on the previous day) and 12,839 confirmed cases (from 17,190). The 7-day moving average of deaths increased to 436, from 432 on the previous day. The total number of deaths now stands at 71,799, with 2,787,303 confirmed cases, which implies a 2.6% mortality rate. The estimated reproduction rate (R) is currently at 0.92 (from 1.06). According to the latest figures provided by the Ministry of Health, Colombia has vaccinated about 6% of its population (around 3.0 million individuals).

Peru

COVID-19 update: The latest official information from the Ministry of Health is that Peru registered a daily increase of 289 deaths (284 on the previous day) and 6,611 confirmed cases (from 7,425). The 7-day moving average of deaths decreased to 354, from 356 on the previous day. The total number of deaths now stands at 60,013, with 1,768,186 confirmed cases, which implies a 3.4% mortality rate. The estimated reproduction rate (R) is currently at 0.91 (from 1.08). According to the latest figures provided by the Ministry of Health, Peru has vaccinated about 2.6% of its population (868.0 thousand individuals).



< Voltar