The Day at a Glance | July 22 2021

The Top

*Inflation in Mexico slows down to an annual rate of 5.75% during the first half of July.

*ECB will maintain stimuli for a longer period of time.

*CCE will announce a third infrastructure investment package for Mexico.

*Economic indicators: Jobless claims increased in the United States (419 thousand vs 350 thousand e.).

Economic environment

Inflation in Mexico slowed down less than expected. The Consumer Price Index recorded a 0.37% rate of growth during the first half of July, according to figures published by the INEGI. The rise was 0.27% larger than what was expected by analysts, which led the annual rate of inflation to set at 5.75% (vs. 5.65% e.). Underlying inflation also exceeded estimates by increasing 0.31% during July`s first two weeks and accelerated to an annual 4.64% rate. Once again, merchandise prices were the ones that increased the most during the period; they rose 0.31% biweekly (0.5% in food merchandise). This growth was paired with an increase in energy prices (1.02% biweekly), which makes general inflation resistant to decrease. The increases seen in agricultural goods (0.33% biweekly) and services (0.24%) were more moderate. The data points to upwards adjustments regarding interest rates on behalf of Banxico in order to have inflation converge with its 3% target in 2022. The next monetary policy meeting is scheduled to take place on August 12th.

The ECB is committed to maintaining stimuli for a longer period of time. In this month`s monetary policy decision, the European Central Bank committed itself to maintaining interest rates low for a longer period of time in order to help prices in the European block recover. In the bank`s statement, it assured that it will not modify interest rates until inflation sets at its 2% target, which isn`t expected to occur until after 2023. The ECB reiterated that it`s possible for inflation to surpass the 2% target in the short term, but it considers this to be temporary and doesn`t warrant the bank to change its monetary stance. Markets don’t expect to see a rise in rates in the next 3 years. The asset purchasing program will also remain unchanged – at least until short and medium term inflationary expectations start to converge towards the bank`s target, the ECB assured.