- Mexico: November y/y headline inflation beat consensus at highest level since 2001
- Peru: BCRP raises rates for five consecutive months, but still considers inflation temporary
MEXICO: NOVEMBER Y/Y HEADLINE INFLATION BEAT CONSENSUS AT HIGHEST LEVEL SINCE 2001
According to INEGI, bi-weekly headline inflation continued its upward trend, accelerating from 6.24% y/y to 7.37% y/y, its highest level since January 2001, beating the consensus of 7.24% y/y (chart 1). Core inflation rose from 5.19% y/y to 5.67% y/y. Merchandise inflation increased to 7.24% y/y (6.58% previous), while services rose to 3.92% y/y (versus 3.62% previous) (chart 2). The non-core component also accelerated, from 9.47% y/y to 12.61% y/y. Energy and tariffs rose to 11.26% y/y from 9.82%, while food accelerated from 9.02% y/y to 14.36% y/y.
In terms of a sequential monthly comparison, price increases accelerated from 0.84% m/m to 1.14% m/m, the fastest pace since January 2017. However, core inflation moderated for the first time in eight months, from 0.49% m/m to 0.37% m/m. And merchandise prices moderated from 0.60% m/m to 0.31% m/m, reflecting the Buen Fin (Black Friday) discount season, although services accelerated from 0.38% m/m to 0.43% m/m as demand for services recovers (chart 2). The non-core component edged up from 1.87% m/m to 3.45% m/m, owing to a higher dynamic of food prices from 0.18% m/m to 4.48% m/m (chart 3), despite tariffs and energy moderated from 3.22% m/m to 2.64% m/m.
In terms of monetary policy implications, we retain our outlook for a 25 bps hike at the December 16 policy meeting to 5.25%, with risks of a higher hike, as we believe that at least one member of the Board could vote for a 50 basis point hike.
—Miguel Saldaña
PERU: BCRP RAISES RATES FOR FIVE CONSECUTIVE MONTHS, BUT STILL CONSIDERS INFLATION TEMPORARY
The Board of Peru’s central bank (BCRP) raised its key interest rate by 50 bps to 2.50% at its meeting on Thursday, December 9, in line with market consensus (Bloomberg), the swap market of interest rate (2.7% with a term of six months), and our own forecast. Despite inflation taking a breather in November, inflation expectations continue to rise and remain above the target range, putting pressure on the BCRP to react by raising its benchmark interest rate.
In our Latam Weekly (October 22, 2021) we raised our benchmark rate forecast from 1.50% to 2.50% by the end-2021, so this move materializes the bullish bias that we have already observed in interest rates (chart 4). For 2022 we expect a hike of at least an additional 150 bps to 4.00%, as indicated in our Latam Weekly (November 5, 2021). Despite this adjustment, monetary policy would not lose its expansionary orientation, as interest rates would remain in negative territory in real terms.
Compared to other economies in the region, the benchmark rate in Peru is relatively low. The monetary policy real interest rate rose for the fourth consecutive month, but remains in negative territory, at -1.2% in December after the decision.
The BCRP statement retains the expectation that inflation is transitory, and reaffirms that the Board expects it to return to the target range during the second half of next year. In contrast, we forecast inflation above the target range for 2022 (4.5%).
Likewise, the BCRP’s Board also indicated that it will remain attentive to new information regarding inflation expectations and the evolution of economic activity “to consider, if necessary, modifications in the monetary policy position”, wording that has been used in past interest rate hike cycles. In accordance with this pronouncement, the BCRP president recently confirmed the central bank’s intention to move towards monetary normalization, which would imply continuing to raise the interest rate in real terms.
The BCRP also pointed out that expectations about the economy have deteriorated in November. However, the President of the BCRP, Julio Velarde, recently pointed out that the fundamentals of the Peru’s economy remain strong, but that in the short-term political uncertainty dominates, causing, for example, that the FX rate is undervalued.
—Mario Guerrero
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