Latam Daily: Chile CPI; Colombia CPI and Exports Recap

• Colombia: The disinflationary process continues, however it won't be enough to support accelerating the easing cycle; Exports fall due to less favourable prices for mining products
  

Market euphoria on Chinese support announcements is melting away as officials fell short of announcing major fiscal stimulus on the return from National Day holidays; mortgage or home-buying support or reserve requirement ratio cuts will not materially lift depressed consumption or unleash debt-ridden local government spending. A 10% drop in the Hang Seng on the day erases all of its gains over the past week (for the month)—but, to be fair, it is up 20% from mid-September. We’ll have to see whether the China economic optimism continues to deflate (and today may just be a take-profit day); without large stimulus, it is probable.

Cooler heads re: China and the imposition of Chinese tariffs on EU brandy as well as studying higher tariffs on large engine vehicles (those big German cars mostly) is depressing European stock indices, taking a bit off luxury/alcohol like Kering and Burberry in Euro Stoxx—and Porsche and BMW down in the DAX—while FTSE has the Anglo Americans and Rio Tintos of the index dragged by declines in commodity prices. The less optimistic China mood is having knock-on effects on iron ore, down 5%, and oil prices as Brent falls about 2%. With the oil decline we had global yields falling in tandem during Asia trading on the leg lower in crude. But, with oil steadying since around 22ET, so have yields, with US 2s hanging around 3.95% and 10s just hugging the 4% level, with a 2bps bull steepening in this stretch of the curve that is roughly mirrored in EGBs and gilts.

It’s another very quiet day ahead in the G10 with no major data of note and just some ECB and Fed speakers. Markets may trade sideways for the remainder of the day but Middle East (Israel retaliation?) headlines pose a risk for market calm. France’s Barnier is expected to survive a no-confidence vote scheduled for today on a motion put forward by the left that is unlikely to garner the necessary support of the right.

Staying on political risks, Bloomberg reported yesterday that Mexico’s Supreme Court has agreed to review the recently-approved judicial reform—on the same day that Pres Sheinbaum presented secondary laws to effect the popular vote of judges in the country. We’re not experts on the matter of Mexican constitutional law, but critics argue that the reform goes against the division of power across branches of government—which would be a core argument against it put forward by some Supreme Court Justices. In an interview, SCJ Laynez (one of eight SCJs who voted last week in favour of studying whether to review the reform) highlighted that the SC can declare the unconstitutionality of the reform and with that halt its progress (e.g. Sheinbaum’s secondary laws), but the Sheinbaum government would still need to recognize or reject this decision—with political risks in either scenario.

In the Latam day ahead, we have the second CPI release of the week, with Chile releasing prices data at 7ET in what is the only noteworthy data out today. Our team in Chile forecasts a 0.28% m/m rise in headline CPI (roughly in line with the 0.3% Bloomberg median) and a similar 0.3% increase in ex-volatiles CPI. Food prices, and shelter and housing expenses (reflecting June/July electricity tariff hikes) will be behind the bulk of the increase in headline CPI. As of Monday’s close, Chilean markets were roughly pricing in a 25bps BCCh rate cut at each of its five next meetings, so already quite a bit of cut optimism looks baked in—which would suggest a stronger inflation print (especially in ex-volatiles) may be more impactful for local rates than a miss.

—Juan Manuel Herrera

THE DISINFLATIONARY PROCESS CONTINUES, HOWEVER IT WON’T BE ENOUGH TO SUPPORT ACCELERATING THE EASING CYCLE

Colombia’s monthly CPI stood at 0.24% in September, according to data released on Monday, October 7^th. The result was below analysts’ average expectation of 0.27% m/m, according to the BanRep survey, and above Scotiabank Colpatria’s expectation of 0.22% m/m. During September, the education group and related expenses around education contributed the most to monthly inflation, while the rest of the groups showed moderate variations, closer to pre-pandemic averages. Additionally, the initial upside impact from the truck drivers’ strike was reversed, and food inflation was mild. Annual headline inflation went down from 6.12% to 5.81% y/y, the lowest level since December 2021 (chart 1), while core inflation ex-food decreased from 6.78% to 6.51%, the lowest since mid-2022. Inflation ex-food and regulated prices slightly improved from 5.51% to 5.49%.

September’s result confirms that inflation in Colombia continues to decrease at a moderate but consistent pace. Additionally, it shows that most CPI components are normalizing their behaviour to the usual average. Despite the result being below market expectations, we don’t see CPI results as enough to motivate an acceleration in BanRep’s easing cycle as the main concern that divides the board right now is the uncertainty around political issues, such as the fiscal uncertainty and the negotiation of the minimum salary that won’t be solved before the next monetary policy meeting on October 31^st. Having said that, we affirm our expectation for a 50bps cut in October to 9.75% and a potential acceleration with a 75bps rate cut in December, as by this month, we expect better clarity around the fiscal strategy for Colombia and the definition of the minimum salary increase for 2025. In the medium term, we project that inflation will converge to the target range in Q2-2025, closing 2025 at ~3.50%.

Highlights:

• Five of the twelve groups in the CPI basket contributed positively to inflation in September. The education group contributed the most to the monthly variation, registering a 1.93% m/m variation and a contribution of 8bps (charts 2 and 3). The education result is not a surprise, as the adjustment of educational fees and other related services is usually done in September. However, the indexation effect was higher than that registered the previous year (+1.79% m/m).

• The lodging and utilities group was the second to contribute the most to inflation. The lodging and utilities group registered a variation of 0.18% m/m and a contribution of 5bps, with rental rates being the ones that weighed the most on the result, showing a persistent indexation effect with a variation of 0.55% m/m, higher than the 0.49% registered the previous month. Meanwhile, utilities offset part of the rent increase, with negative variations in electricity rates (-1.97% m/m) and gas (-0.55% m/m).
• Food registered a moderate variation despite the truck drivers’ strike at the beginning of the month. Food registered a variation of 0.11% m/m, with a contribution of 2bps. Fruits were the foods that contributed the most to the variation in food, however, the negative variation in foods such as potatoes (8.68% m/m), onions (-8.78% m/m), and tomatoes (-3.13%) stands out. Although at the beginning of the month the transporters’ strike generated blockages on the main access roads of the country, triggering shortages of some foods and in turn an increase in their prices, the short duration caused some foods to return to pre-strike levels throughout the month.
• Inflation continues to show moderate variations in most of its components. Restaurants and hotels were one of the groups that registered a greater than average variation (+0.49% m/m), which could be reflecting increases in rents of some establishments. On the other hand, the adjustment in education rates was reflected in other areas such as transportation, due to adjustments in school transport, and clothing, with an increase in uniforms. However, it is noteworthy that eight of the twelve areas registered inflation below the total inflation, which suggests a continued normalization of prices.
• Core inflation deceleration is becoming more gradual. Core inflation, excluding food and regulated prices, was moderate as it decreased only by 2bps to 5.49 y/y. In this group, core inflation of goods continued decreasing from 0.75% y/y to 0.60% y/y in September, especially on tradable goods, while inflation of services increased from 7.45% y/y to 7.48% y/y, something that could prevent BanRep from accelerating the easing cycle. Services inflation reflects the impact of indexation, which is why we think the negotiation of the minimum salary is critical to motivating the acceleration of the easing cycle.

—Jackeline Piraján & Daniela Silva

COLOMBIA: EXPORTS FALL DUE TO LESS FAVOURABLE PRICES FOR MINING PRODUCTS

DANE published export data on Monday, October 7^th. Monthly exports in August stood at US$3.84 billion FOB, registering a 2.5% drop compared to August 2023 (chart 4). Traditional exports fell -8.59% y/y, especially for mining products, while non-traditional exports completed their second positive month with an increase of 5.2% y/y. Compared to the previous month, total exports fell -16.8%, this being the second largest month-on-month drop of the year.

Total exports were mainly affected by a drop in traditional exports. The drop in traditional exports is mainly explained by a less favourable price for mining products, while coffee exports maintained a positive dynamic showing an increase in the exported volume. For their part, non-traditional exports maintained a positive dynamic driven by some manufactured products (chart 5).

• Traditional exports totaled US$2.54 billion FOB, representing a drop of 8.6% y/y. The declines were concentrated in the export of mining products, in which a 10.09% y/y drop in oil exports stands out, attributed to a lower average oil price during August 2024 (78.7 USD/b) compared to the average price in August 2023 (85 USD/b), something that could not be offset by the higher export volume. Coal and ferronickel exports also showed declines of -27% y/y and -5.5% y/y, respectively. Coffee exports continued to show a positive performance, with an increase of 42.3% y/y, being the largest expansion since June 2022, thanks to better harvests.
• Non-traditional exports totaled US$ 1.83 billion FOB, registering a growth of 5.2% y/y. In August, exports of manufactured goods showed an increase of 7.1% y/y, showing increases in the export of plastics and some electrical parts. Meanwhile, the export of food and agricultural products (excluding coffee) fell -2.9% y/y, in which the export of sugars, cereals, and fish were the products that contributed most to the negative balance, subtracting together 1.3 ppts from the total. In other exported products, the performance of non-monetary gold exports stands out, which increased 14.6% y/y, contributing +1 ppt to the total.

—Jackeline Piraján & Daniela Silva