The Day at a Glance | August 24 2021

The Top

*Inflation in Mexico drops to its lowest level since March during the first half of August (5.58% annual).

*Disagreement among Democrats prevents Biden`s economic agenda from moving forward in the House of Representatives.

*Central Bank of China will stabilize supply of credit in the economy; it called for banks to facilitate financing for small companies.

*German economy grew 1.6% during the 2Q21, boosted by household consumption.

*The United States grew at its slowest pace in 8 months during August, according to PMIs.

Economic environment

Inflation in Mexico slowed down more than expected. The Consumer Price Index logged a (-) 0.02% decrease during the first half of August to set inflation at 5.58%, largely due to a fall in energy prices. Underlying inflation, however, continued to rise after a 0.28% (4.78% annual). The drop in energy prices is due to the implementation of price controls regarding LP gas retail sales, after the government and the Secretariat of Energy considered that retailing companies and distributors were making benefiting from excessive margins. Because of this, starting in August, prices per region are being determined on a weekly basis in order to guarantee easy access to the energy resource; a program that will last 6 months. Energy prices decreased (-) 3.6% during the two-week period (LP gas -15.6%) and led inflation`s slowdown. However, underlying inflation continued to accelerate, boosted by merchandise prices (0.47%; especially non-food merchandise 0.57%), which maintains inflationary pressures in place. Services prices increased a mere 0.06%, due to airfares and tourist services after the end of the holiday season. Despite the government intervention with energy prices, inflation continues to show acceleration that could possibly maintain the Central Bank of Mexico to keep its focus on increasing interest rates this year.