The Day at a Glance | April 11 2022

The Top

*Inflation in the United States will remain above 2% in 2023: Loretta Mester, Cleveland FED.

*Inflation for consumers increases in China (1.5% annual in March); inflation for producers increases at a less than expected moderate pace (8.3% annual).

*Industrial activity in Mexico receded in February (-1% m/m vs 0.3%e.); only manufacturing industries grew (0.6%).

*Emmanuel Macron and Marie Le Pen advance to second round elections in France.

*Germany calls for greater military support for Kyiv.

*Russia will stop the sale of sovereign bonds throughout the rest of the year; it will take legal action if it`s forced to default because of sanctions.

*Credit grew more than expected in China during March.

Economic environment

Inflation descends slowly. In an interview with CBS, Loretta Mester of the Cleveland Federal Reserve assured that it will take time for inflation to decrease towards the central bank`s target. Mester said that she expects inflation to set above 2% in 2022 and 2023; even though she forecasts a descending trend. She warned that recent quarantine measures in China could contribute to additional inflationary pressures at a global level in the following weeks as they could worsen production chain issues. With this, she reinforced the idea that the FED should act decisively with interest rate increases in order to contain inflation. However, she remained optimistic with respect to the economy`s ability to resist tighter financial conditions and avoid a recession. The FED has announced that it will speed up its process of increasing interest rates in the following meetings and estimates that the federal funds rate will set above 2% by the end of 2022. This morning, U.S. Treasury bond yields increased to their highest levels since 2019 (2.75%) in a context of persistent of inflationary pressures and monetary normalization on behalf of the FED.

Inflation in China increases. Consumer inflation in China increased to 1.5% during March after remaining at 0.9% for two consecutive months. The rise is explained by a hike in energy prices – caused by the war in Ukraine – in addition to higher food prices after confinement measures triggered scarcity. Fresh vegetable prices logged a 17.2% annual increase (vs -0.1% Feb.), while fuels set at a 24.1% annual rate. High energy prices also contributed to higher inflation for producers, which decreased less than expected (8.3% annual), along with an overall rise in raw material and input costs. Persistent inflationary pressures for producers, production chain issues and confinement-triggered food prices pose a risk to global inflation. At a national level, the increase in prices is not expected to undermine the central bank`s commitment to stimulate the economy through a deep economic slowdown. Lower internal demand could contain the increase in consumer prices at a local level.