The Day at a Glance | July 1 2022

The Top

*Inflation in Europe continues to rise; the most recent figure exceeded estimates for the eleventh time in the last twelve months. 

*China announced a 45 billion dollar package to finance infrastructure and back the economy.

*Budgetary revenues increased 4% in May, more than expected due to oil revenues, according to the Ministry of Finance and Public Credit (SHCP for its initials in Spanish). 

*The World Bank considers inflation and the decrease in real income in the United States could erode remittances to Mexico.

*Economic indicators: The manufacturing ISM is expected to be made known in the United States (54.9e.).

Economic environment

Inflation in Europe once again surprised to the upside. The Eurozone`s Consumer Price Index increased to its highest annual rate in its history and set at 8.6% during June. The figure surpassed estimates (8.5%e.), and with this, it logged 11 months of inflationary surprises in the last year. This new figure could put more pressure on the European Central Bank to start the increasing rates cycle more aggressively – with a 50bp increase, instead of the 25bp increase that had been planned for its meeting in July. France, Spain and Italy logged record levels of inflation, while the Baltic region`s inflationary rate set above 20%. Energy prices are still the main component behind the rise in inflation. In fact, underlying inflation showed signs of stabilization and became more moderate (3.7% annual vs 3.8% prev.). Contrary to the United States, Europe`s inflationary phenomenon is not a result of excessive demand, as consumption and investment levels in the continent still remain below pre-pandemic levels; what`s causing inflation is the energy shock caused by the war in Ukraine, which has uncovered a rapid hike in inflation. The ECB is expected to start carrying out a series of sustained interest rate increases in order for energy and food inflation to stop translating into an overall rise in prices in the economy. However, in recent days, raw materials and energy prices at a global level have started to log important decreases in light of growing concerns of a global recession, which could help ease inflationary pressures in the following months and aid the central bank in reaching its goal.