Weekly agenda: Rates in Mexico and Peru; inflation in Brazil and Chile

This week will bring key data for Latin America’s economy and some political events that will attract investors’ attention.

In Brazil, for example, President-elect Luiz Inácio Lula da Silva will attend the COP27 climate conference in Egypt, where he is expected to reveal more about his government’s approach to the environment.

In addition, markets will be watching for announcements about his cabinet. On the economic front, October inflation will be released.

In Mexico, the central bank is expected to keep in line with the U.S. Federal Reserve and raise interest rates by another 75 basis points to control high prices.

In addition, October headline inflation and September industrial production will be released.

In Chile, October inflation data will also be released. According to economists Adriana Dupita and Felipe Hernández of Bloomberg Economics, headline and core inflation could decrease below the Chilean central bank’s forecasts.

On the other hand, industrial production and retail sales in Colombia are expected in September, which probably moderated but would point to activity and domestic demand continuing to increase and being above potential.

While in Peru, the focus will be on the fact that the central bank could raise interest rates by another 25 basis points as policymakers consider the end of the tightening cycle.

“Additional hikes remain necessary to protect financial stability and reduce inflation and inflation expectations,” Dupita and Hernandez wrote in their forecast.

BRAZIL

September retail sales are due on Wednesday, November 9. Dupita and Hernandez expect a mixed performance, with core sales contracting 1% and overall sales expanding 0.4% in the month.

Meanwhile, their projections call for the three-month average of broad retail sales, which provide a proxy for retail’s contribution to GDP, to contract 2.3% in the third quarter and fall 2.4% from a year earlier.

Retail sales have reflected the fiscal boost from cash payments to low-income households, tightening credit conditions, and consumers’ shift from goods to services as the economy has revived.

October inflation will be released on Thursday, November 10. After three months of deflation, the figure will likely rise from an advance in the mid-month CPI reading.

Rising food and health and personal care prices, as well as seasonal increases in clothing, should drive the overall increase.

“We expect transportation costs, which have fallen significantly since July thanks to tax cuts and gasoline prices, to rise in October,” Dupita and Hernandez indicated.

September services volumes will be released on Friday, November 11, which are likely to have advanced more slowly than in the previous month as the effects of the economic reopening already appear to be waning.

However, the boost from the pre-election cash handout likely supported the sector.

COLOMBIA

September retail sales data is due out on Friday, November 11. Dupita and Hernandez’s projections indicate that they would have increased by 5.6% from the previous period, albeit a slower increase every month.

The results would be consistent with resilient household consumption but would point to growing headwinds from accelerating inflation, cumulative peso depreciation, and higher interest rates.

On the same day, September industrial production will be released, which likely rose by 4.6% y-o-y.

The manufacturing sector would be responsible for most of the advances, driven by the resilience of domestic demand.

Mining could also contribute, boosted by coal exports that have seen increased demand following sanctions on Russia.

CHILE

On Monday, November 7, the trade balance for October was published, which probably recorded a surplus of US$790 million compared to a deficit of US$513 million in September and a gap of US$467 million a year earlier.

If confirmed, the surplus would be the largest since January. According to Dupita and Hernandez, the decrease in imports should explain most inter-monthly variations and the monthly differences.

October inflation data will be released on Tuesday, November 8. Dupita and Hernandez expect it to have fallen to 13.6%, pointing to a peak of 14.1% in August.

“This would support our expectation that inflation will fall slowly this year and next but remain well above the 3% target,” the economists said.

MEXICO

Gross fixed investment in August will be released on Monday, November 7. The figure is likely to have increased by 2.8% from a year earlier and would imply that investment rebounded after July’s month-on-month decline.

According to Dupita and Hernandez, equipment imports would have increased to US$4,180.

The upward trend would be consistent with Mexico attracting capital and benefiting from the United States-Mexico-Canada Agreement (USMCA) and companies reorganizing their global supply chains.

Meanwhile, construction activity would have fallen 1.7% from the previous month, given tighter fiscal and monetary policies. “The government’s nationalistic rhetoric is also a drag,” economists said.

October inflation is due on Wednesday, November 9, and will likely fall to 8.46% from 8.70%.

It would point to a slow decline from the September peak but still, be well above the 3% target.

Energy and regulated products inflation should fall from September’s 5.88%, as lower propane prices would more than offset small increases in gasoline prices.

Meanwhile, core inflation will continue to rise, reaching 10.8% in September.

Thursday, November 10, will be the monetary policy meeting of the Central Bank of Mexico (Banxico).

Economists at Bloomberg Economics expect the entity to raise its benchmark rate by 75 basis points to 10.0%, maintain a ‘hawkish’ tone and signal additional hikes.

This move would match the hike from the previous three meetings.

“The tightening of external financial conditions following the Fed’s 75 basis point hike and the more restrictive outlook on November 2 has reduced Banxico’s room for maneuver,” noted Dupita and Hernandez.

On Friday, November 11, the September industrial production will be released.

Forecasts by economists at Bloomberg Economics suggest that it probably rose 4.8% in September from a year earlier.

The data, if confirmed, would imply that production resumed its upward trend after a virtually flat August figure.

The increase in exports to the United States and the recovery of domestic demand would explain the advance.

PERU

On Thursday, November 10, the Central Bank of Peru will hold its monetary policy meeting.

Economists Dupita and Hernandez expect officials to raise the benchmark interest rate by 25 basis points to 7.25%.

The central bank governor said earlier this month that the end of the tightening cycle is near, but further hikes are possible if data warrant.

Persistently high inflation supports further hikes, as does the rising economic activity. Tighter external financial conditions would also argue for further hikes.

The decision would match the 25 basis point hikes at the previous two meetings and bring cumulative hikes to 700 basis points since the start of the cycle in August 2021.

With information from Bloomberg