The Day at a Glance | Sep 22 2022

The Top

*Underlying inflation continues to increase in Mexico.

*Markets expect the European interest rate to reach 3% by May, an important upwards adjustment after aggressive increases by other central banks.

*The Central Bank of England increased the interest rate in 50bp to 2.25%.

*Japan intervened in the exchange market for the first time since 1998 to stop the Yuan´s depreciation.

*Powell reiterates that the road to control inflation will be painful; the FED expects very slow growth in the US economy.

*Russian citizens protest against Putin´s military mobilization; Finland reports an increase in migration of people across its border.

Economic environment

Underlying inflation continues to increase. Inflationary data for the first half of September confirmed a faster than expected acceleration in Mexico, especially in the underlying component. The general index logged annual stabilization by setting at 8.76% (vs 8.77% in the second half of August) and a 0.41% biweekly increase (vs 0.36%e.), backed by a decline in energy prices (-0.25% biweekly) and a more moderate increase in agricultural goods (0.86%). However, underlying inflation reached an 8.27% annual rate after increasing 0.44% biweekly (vs 0.42%e.). Commodities maintained a practically constant increasing trend during the period (0.5% biweekly) with respect to last half of August, but services increased considerably (0.36%) and logged their highest biweekly rate of inflation so far this year. The increase in tuition fees is something that stands out, as they logged a 1.98% biweekly increase and reached a 4.49% annual rate; the largest increases were seen in elementary (4.16% biweekly) and pre-school (5.05%) fees as the new school year kicked off. The increase in underlying inflation will continue being one of the Central Bank of Mexico´s main concerns; and along with the FED´s decision yesterday, is establishing the foundations for a 75bp interest rate increase in next week´s monetary policy meeting, which will take the rate to 9.25%. If Banxico continues increasing rates along with the FED throughout the rest of 2022, and hikes the rate in 125bp in the last two meetings (November and December), the rate could reach 10.5% by the end of the year.