The Day at a Glance | October 12 2023

*Consumer inflation in the United States sent mixed signals in September, with an unexpected increase in the overall index, while core inflation fell to its two-year low.

*In Mexico, INEGI published industrial production figures with a yearly 5.2% rate of growth in August, widely exceeding the market’s expected 4.6% y/y.

*Yesterday, the Ministry of Finance and Public Credit issued a decree to establish tax incentives aimed at boosting the nearshoring process in Mexico. Overall, companies will be able to deduct their investments in a range from 56% to 89% in 2023 and 2024, in addition to guaranteeing an additional 25% deduction for three years for worker training expenses.

Economic environment

Consumer inflation in the United States, measured by the Consumer Price Index (CPI), remained unchanged at 3.7% y/y in September. This figure exceeded the market’s expected 3.6% y/y. In its monthly reading, the CPI logged moderation at 0.4% (-0.2pp), although it still exceeded the estimated 0.3% m/m due to pressures on service prices, which accelerated to 0.6% m/m (+0.2pp). This acceleration was driven by the housing component (0.6% m/m vs. 0.3% m/m prev.) and continued recording significant increases in transportation prices (0.7% m/m vs 2.0% m/m prev.). Additionally, another significant contributor was the energy category (1.5% m/m), with gasoline increasing 2.1% m/m from a previous 10.6% m/m figure. By excluding the more volatile elements such as energy and food (which increased by 0.2% m/m), core inflation logged a 0.3% m/m figure, the same as in the previous period and in line with market expectations, despite the acceleration in service prices that were previously mentioned, thanks to a greater contraction in the prices of items excluding food and energy (-0.4% m/m), such as used cars (-2.5% m/m), clothing (-0.8% m/m), and healthcare products (-0.3% m/m). Because of this, core inflation´s annual reading declined for a sixth consecutive month, reaching a two-year low of 4.1%, matching market estimates. It’s important to highlight that the housing category is still the largest contributor to core inflation, as it logged an annual 7.2% reading. Therefore, when excluding this component, the annual figure – excluding energy, food, and housing – set at 2.0%. While the recent stall in the general index suggests maintaining a tight stance on the monetary front, the market still doesn’t factor in an additional increase and even expects the first rate cut to take place in June of next year. In light of this, it will be crucial to keep an eye on economic activity and labor market figures, which could potentially tilt the balance towards an additional rate hike in case they remain resilient.