The Day at a Glance | May 22 2020

Inflation rises above estimates

INEGI figures confirm a 0.3% rise in the Mexican Consumer Price Index in the first half of May, compared with the previous biweekly figure. The piece of information set above estimates (-0.01% e.) and reflected important increases in agricultural goods and some merchandise. Energy recorded its fifth biweekly contraction of its last seven logs, with a (-) 1.2% fall, but the drop was more than offset by a biweekly 2.43% rise in agricultural goods (fruits and vegetables, 7.42%), which caused a 0.46% rise in inflation`s most volatile component (non-underlying inflation). Regarding underlying inflation, goods (0.36%) contributed most to the rise in prices, especially foods, beverages and tobacco (0.8%). For their part, services recorded a moderate acceleration (0.12%), which contributed to a 0.24% rise in underlying inflation (3.76% annual). The surprising rebound seen in prices backs some of the country`s Central Bank`s arguments of maintaining a cautious posture in light of inflationary risks (the depreciation of the peso and disruptions regarding the supply of some goods), even though the acceleration in prices remains below the Bank`s target.

China drops growth target; prepares legislation for Hong Kong

On the first day of China`s political elite meetings in the National People`s Congress, the country`s leaders announced that they will drop the economy`s 2020 growth targets and will focus on controlling employment and promote investment. The Premier, Li Keqiang, assured that no growth target will be established because of the high level of uncertainty that the pandemic has caused, along with the trade and international economic environments. Li said that the environment makes it difficult to predict the economy`s course, which is why they have decided to drop one of the ruling party`s most emblematic practices in defining economic policies in the last decades. Instead, China has proposed creating 9 million urban jobs this year (the lowest goal since 2013), a rate of unemployment under 6% and proposed increasing the fiscal deficit to a little over 3.6% of GDP in order to reinvigorate public investment. With this, the Chinese government`s priority will be employment and investment – not growth. Most recent estimates forecast a 1.8% GDP expansion in 2020, the lowest figure since the seventies. Additionally, Li announced a draft law for Hong Kong, in order to impose stricter national security laws and prove the city with a “robust” legal system. It`s believed that this could affect the city`s autonomy, which is something that caused civil protests and frictions with the US. In recent days, President Donald Trump has warned that if legislation moves forward and China attempts to exercise more control over the city, there will be a strong response on behalf of the US, with possible economic sanctions. China has ignored the warning and the likelihood of an escalation of tensions between both powers has increased.

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