The Day at a Glance | September 9 2020

The Top

· Inflation in Mexico reaches 4.05% annual during August.

· The Ministry of Finance and Public Credit (SHCP for its initials in Spanish) presents the 2021 Economic Package with an estimated 4.6% growth next year.

· The US prepares restrictions regarding cotton and tomato imports from Xinjiang, China, after accusations of forced labor.

Economic environment

Inflation figures published by the INEGI this morning confirmed an acceleration in inflation during August. Prices increased 4.05% at an annual rate (vs 4.02% e.; 3.62% prev.) after recording a 0.39% increase during the month. Part of the rise is explained by a low comparable basis since last year`s August figures were exceptionally low (-0.02%), while components that contributed most to the increase were non-food goods (0.63% monthly) and fruits and vegetables (2.97%). The prices of goods maintained upward pressure on underlying inflation, which recorded a 0.32% monthly growth and reached a 3.97% annual rate, its highest level since early 2018. This is the first time that inflation sets in the high part of the central bank`s objective in the last 15 months and reinforces expectations of seeing more cautious cuts in the interest rate and a possible break regarding the downwards trend in the last quarter of the year.

The Ministry of Finance and Public Credit presented the 2021 economic package before Congress. The macroeconomic assumptions show optimism regarding the economy`s recovery next year as it estimates tax revenues based on a 4.6% growth in GDP; figure above the 2.5% estimated by the consensus specialists. Among other assumptions, the price of oil is estimated at 42.1 dollars per barrel, production at 1 million 857 thousand average daily barrels, inflation at 3% annual at the end of 2021 and a 4% target rate for Banxico (50 base points below its current level). The exchange rate is estimated at 21.9 pesos per dollar. Overall, the package maintains standards to avoid an increase in taxes (they are only adjusted because of inflation), reach a responsible level of debt, and effectiveness and efficiency concerning public spending. A 3% decrease is forecasted for income with respect to what is estimated for the end of 2020 (mostly due to non-recurring expenses because of COVID-19), and a 1.3% reduction in spending. Spending on healthcare will be favored (9% of the budget) and 20% of spending will be allocated to PEMEX and the CFE. Adjustments in the Chamber of Deputies are still pending, where the possibility of increasing taxes on “junk food” is being considered in order to reinforce revenues.