The Day at a Glance | Jun 23 2022

The Top

*Inflation in Mexico during the first half of June once again increased more than expected (7.88% annual).

*Banxico is expected to increase rates in 75bp (7.75%e.).

*Europe´s economy slowed down more than expected during June, according to timely PMI´s (Manuf. 52 vs. 53.9e.; Serv. 52.8 vs. 55.5e.).

*Jerome Powell recognized that it will be difficult to avoid a recession if the FED continues to increase rates aggressively in order to contain inflation.

*Construction costs of the Dos Bocas refinery doubled to 18 billion dollars.

*Germany warns that Russia´s actions to limit supply of natural gas to Europe could lead to the energy market´s collapse.

*Retail sales in Mexico logged a 4.6% annual increase in April, 0.4% month over month.

*Xi reaffirms that China will grow 5.5% in 2022, calls to adopt more efficient measures to reach said goal.

*Russia blames Ukrainian drones for the Rostov refinery explosion.

Economic environment

Inflation in Mexico doesn´t give. According to the INEGI´s most recent figures, inflation for consumers increased 0.49% on a biweekly basis in the first half of June, a figure considerably above the estimated 0.31%. This confirms an acceleration in inflation, which set at an annual 7.88% rate. Underlying inflation also surprised to the upside by logging a 0.5% biweekly increase (vs. 0.34%e.) and a 7.47% annual rate. Neither general nor underlying inflation showed signs of stabilization and continue to log an increasing trend that worries the central bank, agency that expected inflation to reach its peak this quarter. Energy prices logged a 0.18% rise in the biweekly period, while agricultural goods recorded more considerable hikes (0.85%, their largest increase since March; fruits and vegetables 1.03%). Prices of commodities, for their part, didn´t show any signs of moderation and logged their largest biweekly increase since January (0.64%), led by food, beverages and tobacco (0.74%); although non-food commodities also logged important increases (0.51%). Concerning inflation among commodities – which has dominated throughout the entire inflationary process – inflation could be reaching a 21-year high. The data confirms that the Central Bank of Mexico should carry out more aggressive interest rate hikes as it´s expected to increase rates in 75bp in its monetary policy meeting today. This would be the largest interest rate increase since the Central Bank of Mexico uses a target rate to reach an inflationary target (2008). However, a surprising 100bp increase cannot be discarded in light of the central bank´s need to send a decisive message against inflation to keep medium and long-term inflationary expectations anchored.