The Day at a Glance | May 7 2021

The Top

*Inflation in Mexico confirmed acceleration slightly above estimates for April (6.08% annual vs 6.01% e.).

*Employment figures in the US disappointed as they logged an increase of 266 thousand (vs 1M e.); unemployment increased to 6.1% (vs 6% e.).

*FED warns that the financial system`s vulnerability has increased due to growing appetite for risk in financial markets.

*Vehicle production (-11.32% monthly) and exports (-8.4%) in Mexico decreased during April.

Economic environment

The Consumer Price Index in Mexico recorded a 6.08% annual rate of acceleration during April. Prices in the economy accelerated slightly more than estimated, with a monthly rise of 0.33% (vs 0.25% e.). Underlying inflation also exceeded estimates (0.37% vs 0.33% e.). Energy prices decreased (-) 2.15% during the month with the start of electric bill subsidies in several cities in the country due to the warm season, even though low octane gasoline increased 0.43%. The rise in fruits and vegetables was considerable (4.29% monthly), which contributed an 0.21% increase to the monthly rate of non-underlying inflation and 12.34% at an annual rate, its highest level since 2017. Regarding underlying inflation, goods logged an 0.44% monthly increase, with the greatest rises seen in food, beverages and tobacco (0.52%), while services also increased 0.28%. This led the less volatile component to record a 4.13% annual increase. Inflation at an annual rate is expected to decrease in the following months – as the effects of a low base comparison start to thin down. However, the upward surprises (especially in the underlying component) suggest that some inflationary pressures could be more persistent than originally thought, which will very likely keep the Central Bank of Mexico vigilant regarding price movements. Next week (Thursday, May 13th), Banxico will hold a monetary policy meeting, in which no modifications to the target interest rate are expected to be made.

Employment figures dramatically surprised to the downside in the US as only 266 thousand jobs were created – against one million expected. Most jobs were created in the services sector, which suggests that the recovery in the labor market continues. However, the exceptionally low figures (compared to estimates) suggest that companies are facing problems in the re-hiring process. Among the possible issues is unemployment aid, which could be discouraging unemployed citizens to return to their jobs (the participation rate remained at 61.7%). Unemployment assistance comes to an end in September, which is why many US citizens could be waiting until then to formally look for a job. The rate of unemployment increased to 6.1% during the month. This is the greatest deviation that official employment figures have had against estimates in history.