The Day at a Glance | March 24 2021

The Top

*Inflation in Mexico increases above estimates (4.12% vs 3.9% e.) before Banxico`s meeting.

*European economy sees growth during March.

*Merkel suspends the implementation of quarantine measures in Germany in efforts to stop a third wave of the virus.

*Economic indicators: Durable goods orders fall for the first time in the US since April (-1.1% Feb.).

Economic environment

Inflation in Mexico exceeded the upper part of the central bank`s target range during the first half of March. Inflation accelerated 0.53% on a biweekly basis and set at an annual 4.12% rate, its highest level in two years. The rise was mainly boosted by energy prices, which increased 1.78% during the period. The underlying component increased 0.35% biweekly (vs 0.2% e.) and set at 4.09% annual, with goods leading the rise. The acceleration in prices is no surprise since a rebound is expected to occur during March and April due to a low base comparison; however, the rapid upsurge – which exceeded estimates – could increase caution among members in the Central Bank`s Governing Board, which is scheduled to make a monetary policy decision on Thursday. Expectations of seeing a new cut in interest rates has gone down in recent weeks. Analysts are divided regarding what the central bank will decide on Thursday: In a Bloomberg survey, 56% of analysts expect the interest rate to stay unchanged, while the remaining 43% of analysts expect to see the target rate cut to 3.75%.

The European economy once again recorded growth in March, according to PMIs. Manufacturing activities grew at a record-rate and exceeded estimates (62.4 vs 57.6 e.) during the third month of the year, boosted by the European economy`s return to growth. Services remained under the growth threshold (48.8 vs 46 e.), although they showed improvement with respect to February and exceeded forecasts. With this, the economy`s Composite PMI set at 52.5 and once again recorded growth after 7 months of contraction. What stands out is the growth seen in prices, with the price of consumables reaching their highest rate of acceleration in the last decade and sales prices at their highest levels in two years. IHS Markit, who published the survey, expects that the rise in prices will be reflected in greater consumer inflation in the following months. Nevertheless, there are still risks of seeing a low rate of growth in Europe since several countries of the region have implemented strict mitigation measures.