Weekly agenda: Chilean and Peruvian rates; inflation in Brazil, Mexico, and Colombia

RIO DE JANEIRO, BRAZIL – Chile and Peru will be two of the countries receiving the most attention from markets in the region this week. Central banks are expected to continue their rate hike cycle in the face of a relentless inflation nightmare.

Meanwhile, the spotlight will also be on Brazil, Mexico, and Colombia, which will publish their new inflation data.

In all three cases, a slight slowdown in prices is expected amid subsidies and government measures negotiated with the private sector in the case of Mexico.

Finally, analysts will be watching the development of the Summit of the Americas in the United States.

COLOMBIA

JUNE 4

An inflation update will be released, probably dropping to 9.07% in May from 9.23% in April. Lower food inflation due to base effects would explain the decline.

Bloomberg economists Adriana Dupita and Felipe Hernandez detail that although food prices declined annually, they would show an increase from the previous month.

MEXICO

MONDAY

Gross fixed investment probably increased 3.7% in March from a year earlier and up from 1.7% in February.

Imports of capital goods would advance 6.8% month-over-month and would point to higher investment in machinery and equipment, already above their pre-pandemic levels.

Meanwhile, construction activity would be up 3.7% year-over-year after a 1.6% decline.

THURSDAY

Inflation would register a slight slowdown to 7.61% in May from 7.68% in April. Smaller price adjustments in line with increased government subsidies and measures negotiated with private companies to reduce costs and increase productivity help explain the slowdown.

Inflation excluding unprocessed food, energy, and regulated prices would likely be 7.28%. Core goods inflation is poised to rise further after reaching 9.33% in April, while services may show moderate data.

FRIDAY

The latest industrial production data is likely to show a 2.3% increase in April from a year earlier, up from 2.6% in March. “The data imply a small advance after 0.4% growth in the third month.

“Industrial production is recovering but remains below pre-pandemic levels,” Dupita and Hernandez said.

The data point to a slight recovery in manufacturing with a rebound in construction but a slowdown in auto manufacturing, mining, and petroleum.

CHILE

TUESDAY

The publication of the trade balance will arrive for which Dupita and Hernandez forecast a surplus of US$1.55 billion in May. The increase in exports would more than offset the increase in imports and explain the month-to-month and year-to-year differences.

Preliminary figures show an increase in lithium exports and higher shipments of manufactured products, while copper exports are down.

On the other hand, food and energy imports are estimated, in line with high commodity prices.

Regarding the Central Bank’s Monetary Policy meeting, to be held that day, economists expect an increase for the rate of 75 basis points to 9%, lower increases than those of 125 basis points in May and 150 basis points in March.

“With activity falling and monetary conditions tightening, we believe policymakers will opt for a smaller move than in previous meetings,” they said.

The central bank has raised the policy rate by 775 basis points since the tightening cycle in July 2021.

Inflation jumped to 10.5% in April from 9.4% in March. Core inflation rose to 8.3% from 7.6%. Both were above consensus and central bank forecasts.

WEDNESDAY

Mid-week inflation adjustment will be released. Dupita and Hernandez estimate it rises to 10.9% in May from the previous 10.5%.

Food inflation will likely rise from 14.8% in April, while energy inflation will increase from 19.8% due to higher gasoline, diesel, and propane prices.

Excluding food and energy, services inflation would be 8.8%.

On the other hand, the quarterly monetary policy report will arrive, signaling a more challenging outlook, with higher inflation despite weaker growth and tighter financial conditions.

“We expect an upward revision to inflation projections following recent large releases. The data should also take into account food and fuel price risks, persistent supply chain disruptions, cumulative currency depreciation, price indexation, and rising costs,” the experts noted.

In addition, policymakers are likely to lower their GDP growth forecasts.

BRAZIL

THURSDAY

Dupita and Hernandez project a slight drop in headline inflation in May to 11.82% year-on-year. The cut in electricity prices will be a key factor in lower inflation.

Other major items such as food and transportation may register high price increases over last year but decline month-over-month.

The year-over-year rate will decline after two years of a nearly uninterrupted rise from its pandemic low of 1.88% in May 2020.

FRIDAY

Rising consumer and retailer confidence and an advance in labor income support the expectation of a good retail sales performance in April. They would register an advance of 0.5% monthly and 3% annually.

If confirmed, this result would bring the three-month average of core retail sales to 2.8% growth.

PERU

THURSDAY

The Peruvian central bank will also hold its monetary policy meeting.

“We expect the central bank to raise its benchmark rate by 50 basis points to 5.5% and reiterate plans for additional hikes to slowly normalize monetary conditions,” economists referred to the agency’s reluctant stance to accelerate the pace of tightening.

Dupita and Hernandez warn that policymakers may be falling behind the rate curve in the face of high inflation. Concerns about political noise and financial stability add risks.

In May, the central bank raised rates by 50 basis points to 5.0%. The decision followed 50 basis-point increases in each of the previous eight months and a 25 basis-point increase in August.

With information from Bloomberg