The Day at a Glance | April 7 2020

Inflation decelerates more than expected due to energy prices

According to figures published by the INEGI this morning, general inflation in March decelerated to 3.25% annually, after a (-) 0.05% setback during the month. The underlying index continued its moderate downwards tendency and set at 3.6% annual (0.29% monthly), with moderate increases in prices of goods (0.35% monthly) and services (0.23%). The prices that contributed the most to the monthly contraction were energy prices (-4.17% monthly; especially gasoline), which took the non-underlying component to record a (-) 1.06% contraction in March. The figures support the likelihood of seeing a more accommodative stance on behalf of Mexico`s Central Bank, which could continue to cut interest rates in May. Social distancing measures and self-quarantine measures, which has people staying at home, has caused weaker demand for gasoline around the world. It`s estimated that in the US the demand for gasoline has dropped 46.6%, while in countries with stricter measures to contain COVID-19`s spread, such as Italy or Spain, this has reduced in up to 85%. With this, refineries have gradually reduced production as their oil inventories are high and its storage becomes saturated, which further decreases prices.

More stimulus in the US

Recent reports suggest the United States prepares to carry out further fiscal stimulus of over one trillion dollars, this in addition to the packages announced in previous weeks. Nancy Pelosi, Speaker of the House of Representatives, assured democrats in a private meeting that there is need of increasing available resources in form of direct deposits, unemployment benefits, local government assistance and providing small businesses with credit, which would require an additional fiscal package of over one trillion dollars. Pelosi said she wants the package to be approved this month even though Congress is on a recess and will not resume until April 20. These statements are made during the most complicated week the US has had in fighting COVID-19 and after recent devastating figures were recorded regarding unemployment in recent weeks, which puts the economy`s quick recovery into question.