The Day at a Glance | June 24 2020

Inflation surpasses estimates in Mexico

The rebound in the Consumer Price Index regarding the first half of June was 0.32% biweekly, above the 0.12% estimated by analysts. With this, the annual rate of inflation set at 3.17%, its highest since March of this year. The largest increases were seen in non-food goods (0.87% biweekly) and energy resources (2.18%). Underlying inflation sped up 0.29% and maintained at a level of 3.66%, with the prices of services staying stagnant (0.15% biweekly) and an acceleration in merchandise (0.43%). The rise in gasolines (low octane 2.95% biweekly; high octane 2.06%) and LP Gas (1.57%) boosted the underlying component upwards, which has allowed it to exit a contractive trend at an annual rate (1.63%) despite the weakness seen in agricultural goods (-0.92% biweekly). Data suggests greater inflationary pressures in the short run, especially regarding energy resources and merchandise. Mexico`s Central Bank anticipated some of these movements and a rebound doesn`t put into question the likely 50 bp cut in interest rates tomorrow, but will give the most cautious members of the Governing Board arguments to maintain cuts at moderate and gradual levels as time moves forward. Nevertheless, the strong contraction in the economy due to the virus along with the lack of aggressive fiscal stimuli suggest there are deflationary pressures on the demand side.

The US prepares tariffs for Europe

The Office of the US Trade Representative published a statement yesterday confirming that the country is contemplating new tariffs close to $3.1 billion in exports from France, Germany, Spain and the UK. A list of products include trucks, airplanes, cheese, gin, beer and other agricultural goods. According to Bloomberg reports, some of the tariffs could be above 100%, which would severely affect many of these exports` profitability. The US trade representative, Robert Lighthizer, has backed the implementation of new tariffs as a tactic to pressure Europeans in order to persuade them into renegotiating their trade relationship. The dispute threatens to deteriorate transatlantic trade flows as Europeans also plan to implement tariffs on industries that are politically sensitive for the US. The most recent trade-related frictions between both occurred after the US left negotiations and not approving taxes being placed on US tech companies (which led to commercial threats), but both economies have been trying to renegotiate their commercial relationship since last year and have increased tariffs on aircrafts and other products because of a dispute in the WTO regarding subsidizing Airbus and Boeing.