The Day at a Glance | September 7 2023

*Core inflation in Mexico surprised to the downside in its August reading. 

*Chinese foreign trade figures logged relative “improvement”, although they maintain a negative tone.

*The US Non-Manufacturing ISM Index surprised to the upside in August by logging a 54.5 point figure, surpassing the market’s expected 52.5; this is its fastest pace of expansion since February of this year. Notably, there was a recovery in price pressures and employment. 

*In Mexico, automotive production reached 325,676 units in August, (2.8% y/y growth). Additionally, car exports increased by 15.7% y/y, and reached 287,845 units, marking their highest reading since March 2020.

Economic environment

Inflation in Mexico decreased to 4.64% in August, with a positive surprise stemming from the core component. This marks seven consecutive months of declines and a -327 base point decrease from the 7.91% figure logged in January of this year, although it set slightly above the 4.62% expected by the analysts´ consensus. On a monthly basis, a 0.55% figure was recorded, which is 0.2 percentage points higher than what the market had forecasted, and set above the historical average (2000-2022) for August ( 0.37% m/m). The higher-than-expected reading is explained by an acceleration in the core component, which increased to 1.44% m/m from July’s 0.77%, more than double the historical average (0.69% m/m). This was driven by a solid increase in energy prices (1.17% m/m) and government tariffs, following five consecutive negative readings, and a 1.74% m/m increase in the agricultural sector, which remained high for the second consecutive month (historical average of 1.18% m/m). In contrast, the core component surprised to the downside, with a 0.27% m/m increase, below the 0.3% m/m expected by the consensus and in line with its historical average for August. Within this component, price variations for goods continued to increase more moderately (0.24% m/m from July’s 0.31% m/m) and set below the monthly average for August (0.36% m/m). Meanwhile, the figure logged in services dropped to 0.31% m/m from the previous 0.49%, although it still remains above the historical 0.18% m/m average. With this, the core component´s annual reading also surprised to the downside by setting at 6.08% y/y (vs. 6.12% e.) and marking its lowest level since December 2021. Meanwhile, the non-core component returned to positive territory with a 0.37% y/y reading after two consecutive months of negative readings. Overall, while inflation continues to move in the right direction as there is an increasingly clear moderation in the core component, its elements remain far from the inflationary target. Simultaneously, non-core categories are starting to exert greater upward pressure, limiting the speed at which the overall index is decreasing.

The decline in China’s foreign trade is lessening as signs of stabilization emerge.China’s trade balance components continued to decrease in August as both weak foreign and domestic demand continue to impact the country´s economic activity. Exports surprised to the upside by logging a -8.8% drop in August (vs -14.5% prev.) and fell less than expected by analysts (-9.8% e.). Imports also declined less than expected as they logged a -7.3% figure (-9.0% e.; -12.4% prev.). Because of this, the world’s second-largest economy is at risk of not achieving its 5% growth target, which has led analysts to start revising their growth forecasts downwards.