The Day at a Glance | November 12 2021

The Top

*Inflation is high, but it`s not out of control: Alejandro Díaz de León, Governor of Banxico.

*Industrial production in Europe contracted less than expected during September (-0.2% monthly; 5.2% annual).

*Markets still expect the Bank of England to increase interest rates in December.

*Central Bank of China once again committed itself to maintain stability in the country`s real estate market.

*Tourism GDP in Mexico increased 9.2% in the 2Q21 (52.5% annual).

Economic environment

Banxico`s actions will depend on data. In interviews after yesterday`s monetary policy decision, Governor of the Central Bank of Mexico Alejandro Díaz de León assured that Banxico will base its future monetary policy decisions on data. When asked about market agents` expectations of the central bank to continue increasing interest rates, he assured that they are committed to a specific trend, and that it will all depend on the evolution of inflation and other factors that affect it. He acknowledged that that inflation is high, but that it is not out of control; even though he affirmed that it`s difficult to know it if has already reached its maximum level. The central bank increased its inflationary expectations for the end of 2021 to 6.8%. The bank also reiterated that inflationary pressures are being triggered by transitory factors linked to the pandemic and that the monetary policy has been reinforced to guarantee that these factors don’t lead to more widespread inflation. In the bank`s last statement, Banxico assured that the inflationary environment has deteriorated and that risks are still skewed upwards, which is something that has been interpreted as a sign that the central bank could adopt a more aggressive stance if inflationary pressures continue. However, given the fact that inflation is, in good part, coming from a shock in supply – and is occurring at a global level (where monetary policy has little impact) – it`s unclear whether Banxico will continue carrying out this strategy, which is why interest rate increases could continue being gradual through 2022.