The Day at a Glance | March 24 2022

The Top

*Inflation in Mexico accelerated slightly less than expected during the first half of March.

*PMIs confirm strong inflationary pressures in Europe.

*Mexico´s Central Bank will carry out a monetary policy decision; the interest rate is expected to increase in 50bp (6.5%e.).

*Members of the FED confirmed willingness to act more decisively to contain inflation.

*NATO warns Putin about severe consequences if Russia uses nuclear or chemical weapons in the conflict with Ukraine.

*Russia will stop accepting dollars in the sale of natural gas and will only accept rubles.

*U.S. negotiates an agreement with Europe – it will provide American natural gas and reduce Europe´s dependency on Russian gas.

*Biden will request Congress for 118 billion dollars in national security spending, a 4% increase with respect to 2021 in light of growing geopolitical tensions.

*Legislative committees call on Mexican representatives to define when and how the electric bill discussion will start.

*Jobless claims in the United States fell to 187 thousand last week; its lowest level since 1969.

Economic environment

Inflation in Mexico. The Consumer Price Index logged a 0.48% biweekly increase during the first half of March (vs 0.52%e.). With this, general inflation became slightly more moderate and set at 7.29% annual. Underlying inflation also recorded a lower than expected biweekly increase by rising 0.35% (0.4%e.) and set at a 6.68% annual rate. Commodities continued being the largest contributing factor to inflation due to its size in the basket of goods and increased 0.49% biweekly, even above energy prices (1.82%), which logged an important increase due to the conflict in Ukraine. It´s possible that a slight moderation in commodity prices could be seen with respect to previous biweekly periods, even though services maintained constant biweekly growth (0.2%). The Central Bank of Mexico expects underlying inflation to reach its peak in March and at the end of the 1Q22. If this isn´t the case, a more restrictive monetary policy will be necessary to keep underlying inflation from derailing. This afternoon, the Central Bank of Mexico will make a monetary policy decision and is expected to increase the interest rate aggressively in 50 base points and set it at 6.5%. This responds to inflationary pressures – and to the fact that members of the FED (Powell, Daly, Mester, Bullard) have confirmed that they will increase interest rates in the U.S. in 50bp if necessary; markets are expecting said increases to be carried out in May and June. For the Central Bank of Mexico, its relative monetary stance is an important factor to consider while carrying out its own decisions.

Inflation in Europe confirmed due to conflict in Ukraine. PMIs for the European economy confirmed slower growth in March and increasing inflationary pressures. The block´s economy continued to slow down in March (Composite PMI 54.5; its lowest level in 2 months) despite good performance in services in light of a recovery in demand because of lighter restrictions. However, excluding this factor, the slowdown would have been much larger due to the conflict in Ukraine. The boost in growth in services is expected to fizzle out eventually. According to the survey, the manufacturing sector is the most affected by growing energy and input prices, in addition to renewed production chain disruptions in light of the war. Consumer prices are expected to increase in the following months. Even though the PMI exceeded growth estimates in March, more weakness is expected to be seen during April, and possibly, throughout the entire 2Q22, in a concerning inflationary environment.