The Day at a Glance | July 7 2023

*Inflation in Mexico decreased for a fifth consecutive month, reaching its lowest level in over two years. 

*June´s US employment rate report showed a clear moderation in job creation. 

*The Non-Manufacturing ISM index exceeded the consensus estimate of 51.2 points for June by setting at 53.9 points, thanks to increased growth in the new orders and employment categories. 

Economic environment

The National Consumer Price Index (INPC for its initials in Spanish) recorded a 5.06% annual figure in June, its lowest level since March 2021. On a monthly basis, inflation increased 0.1%, its largest figure since March of this year, due to a smaller decrease in non-core prices (-0.52 m/m). On the other hand, the underlying component showed its lowest monthly figure since November 2020, thanks to further moderation in merchandise prices (0.28% m/m), which offset the acceleration of services (+0.4% m/m). With this, on an annual basis, underlying inflation decreased to a 15 month low (6.89%), still pressured upwards by food, which continues to log double-digit figures (10.49% y/y). Meanwhile, the non-core component logged a negative figure (-0.36%), something that hadn´t occurred since April 2020 and is entirely attributed to energy prices, which fell by -6.95% y/y. June´s overall reading is positive, although it set slightly above the consensus estimate of 5.04% y/y for the general index and 6.89% for the underlying index. However, they pointed out risks for the second half of the year. The first risk considers that since most of the progress made in general inflation has come from the non-core component, a potential reversion to the mean in energy prices towards the end of the year will exert upward pressure. The second risk is the aforementioned reluctance of the underlying component to decrease, mainly in the food category, which has not seen a similar magnitude of exchange rate pass-through as the appreciation of the currency. 

The US labor market slowed down in June. During June, 209,000 new jobs were created in the United States. This figure was lower than the estimated 213,000 jobs expected by the market, marking the end of 14 consecutive months in which the job creation figure exceeded market expectations. With this, considering year-to-date figures, 1.8 million jobs have been created in the United States. However, this was tempered by the fact that hourly wages accelerated their pace of growth to 0.4% m/m from the previous 0.3% m/m, bringing the annual reading to 4.4% (4.3% prev.). Additionally, the unemployment rate decreased to 3.6% (-0.1pp), but this was already expected by the consensus. For now, June´s figures defy predictions that the US economy will enter a recession. This is because the labor market remains strong despite the Federal Reserve raising interest rates by 500 basis points since March of 2022. Consequently, the Federal Reserve is expected to resume its interest rate increasing cycle in its next monetary policy after “skipping” the June decision to gather more information in order to better understand the trajectory of inflation and bring it to its 2% target.