The Day at a Glance | Aug 24 2022

The Top

*Inflation in Mexico increased (8.62% annual) during the first half of August.

*Markets expect the ECB to increase rates in 100bp in October.

*Neel Kashkari (Minneapolis FED) reaffirms that the FED must do more to reach stability in prices.

*EU Ministers consider having an emergency meeting due to recent electricity price increases.

*Russia plans to issue debt in local denominated currency after a 6-month freeze.

*IMF holds negotiations with Sri Lanka for debt restructuring.

Economic environment

New upwards inflationary surprises in Mexico. The Consumer Price Index once again logged a new 20-year high level of inflation: 8.62% (vs 8.55%e.) during the first half of August. On a biweekly period, inflation hiked 0.42%. Commodities led the increase in prices by logging a 0.72% rise, the largest biweekly hike so far this year – and a sign of persistent inflationary pressures. Services continued to log a moderate 0.22% biweekly increase. With this, underlying inflation set at 7.97% annual, after a 0.49% biweekly rise, and points out that the widespread increase in prices will be hard to control. Among the most volatile components, energy related goods didn’t log a biweekly increase (0%), and despite international gasoline prices having decreased, this has only allowed the federal government to ease fiscal stimulus on fuels. However, lower international gasoline prices have not been reflected in lower local prices. Prices of agricultural goods increased moderately (0.45%) and barely contributed to the overall increase. The rise in inflation continues despite decisive efforts on behalf of the Central Bank of Mexico to contain it. Since June of 2021, Banxico has increased rates in 10 consecutive meetings for a total of 450 bp, which has led the interest rate to rise to its highest level since an inflationary target is used to steer the country`s monetary policy. It`s likely that more will be done, considering the fact that inflation still doesn’t show any signs of having reached its peak.