The Day at a Glance | Aug 11 2022

The Top

*Members of the FED affirmed that they will continue carrying out interest rate increases despite the recent positive inflationary figure.

*Banxico is expected to increase the interest rate in 75bp this afternoon (8.5%e.).

*Inflation for producers in the US decreased more than estimated (9.8% vs 10.4%) in July.

*Industrial production in Mexico increased 0.1% monthly during June (3.8% annual).

*IEA increased its crude oil demand estimates for 2022; it expects electricity generation to substitute natural gas with fuels.

*The drought seen in Northern Mexico is one of the worst seen in the last 30 years.

*Gasoline prices dropped to under $4 dollars per gallon in the United States for the first time since March.

*OPEC+ will not add much more crude oil to global supply due to low idle capacity: IEA.

Economic environment

Members of the FED reacted to the most recent inflationary data. After last month´s surprising inflationary data, members of the FED have stated that the figure will not modify the central bank´s plans to continue increasing rates this year and in 2023. Neel Kashkari (Minneapolis FED) assured that the FED´s objective is to take the federal funds rate to 3.9% by the end of the year and to 4.4% by the end of 2023. The current rate is 2.5%. Kashkari assured that there is still not enough information to change his expectations of said interest rate increases. For his part, Charles Evans (Chicago FED) celebrated yesterday´s inflationary data but remembered that inflation is still unacceptably high and said that they will continue carrying out interest rate increases this year and next in order for inflation to return to 2%. He considered that the rate should reach 3.5% by the end of 2022 and 4% by the end of 2023. Mary Daly (San Francisco FED) said that it´s too early to celebrate any kind of victory over inflation and didn´t discard a 75bp increase in September´s meeting. Markets, however, are now considering a 75bp increase will occur in September with only a 30% degree of probability – after July´s inflationary data was made known. Among economists, there is still no consensus regarding what can be expected for September´s meeting. July´s inflationary data was positive, but productivity is decreasing, labor costs are still on the rise, and the labor market remains solid. If the FED gives any of these components priority as factors that risk increasing structural inflationary pressures, then interest rate increases will not become more moderate. August´s employment and inflationary data will be made known prior to the FED´s decision in September; this could also affect the central bank´s decision.

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