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Broad-based inflationary pressures The rise in Mexico’s headline and core inflation in April, to 7.7% y/y and 7.2% y/y respectively, has a bit further to run in the near term. This will prompt Banxico to deliver another 50bp rate hike this week, to 7.00%, …
9th May 2022
Inflation at multi-decade highs The past week has shone the spotlight on the region’s inflation problem. April CPI figures showed that inflation rose to its highest level since 2000 in Colombia, since 1998 in Peru and since 1994 in Chile. Data out of …
6th May 2022
The communications following the Brazilian central bank meeting yesterday, at which the Selic rate was hiked by 100bp (to 12.75%), confirm that the tightening cycle is nearing an end. But even so, with inflation set to remain firmly in double digits over …
5th May 2022
Signs of life in Brazilian industry The 0.3% m/m increase in Brazilian industrial production in March suggests that the sector made a stronger contribution to GDP growth in Q1 than in Q4, and there are signs of further improvement in April. This supports …
3rd May 2022
An early preview of Colombia’s election Left-wing Gustavo Petro continues to lead in the polls ahead of Colombia’s presidential election next month, and will probably face the conservative Federico Gutiérrez in a run-off vote in June. Both candidates had …
29th April 2022
Solid Q1 but growth to slow sharply in Q2 The pick-up in Mexico’s GDP growth to 0.9% q/q last quarter was largely a result of a strong carryover from late 2021, and the economy was weakening sharply heading into Q2. As the headwinds from high inflation …
Inflation continues to march higher in Latin America, most recently driven by surging food prices owing to poor domestic weather conditions and rising global agricultural prices. This has led to unrest in Peru, and there is growing political pressure to …
27th April 2022
Inflation jump to keep Copom tightening The jump in Brazilian inflation to 12.0% y/y in the middle of April, coming alongside the recent fall in the real, means Copom will almost certainly raise the Selic rate by another 100bp (to 12.75%) when it meets …
Brazil’s election race starts to narrow While Brazil’s presidential election is some way off, the race has taken centre stage in the past week. Former president Lula of the left-wing Workers’ Party has been the front-runner in opinion polls for around a …
22nd April 2022
Price pressures intensifying The rise in Mexico’s inflation to 7.7% y/y in the first two weeks of April was driven by a broad based strengthening of price pressures, which will be a concern for the central bank. This, alongside the increasingly hawkish US …
Overview – The surge in commodity prices will drive stronger regional growth than the consensus expects this year, but not all economies in Latin America will benefit. While Brazil and Colombia will see a terms of trade windfall – we expect GDP growth in …
21st April 2022
Chilean pensions withdraws: here we go again… The political fight over a fresh round of pension withdrawals in Chile underlines the government’s struggle to wean the economy off accommodative policies. This will heap more pressure on the central bank to …
14th April 2022
The sharp rally in the Brazilian real against the US dollar since the start of the year has shown tentative signs of ending, and we think that it will weaken a bit through the end of 2022. The Brazilian real has appreciated by nearly 19% against the US …
Depending on which activity survey you look at, Brazil’s economy either staged a rapid recovery in March or slowed. A comprehensive look at the latest figures suggests that the latter is more likely. One clearer message is that price pressures remain very …
12th April 2022
Industrial recovery stalling The disappointing 1.0% m/m fall in Mexico’s industrial production in February was partly because a temporary boost to mining output at the start of the year reversed course. But there were broader signs of weakness in industry …
11th April 2022
Peru: protests & political peril? The mass protests this week in Peru, triggered by rising inflation, are likely to lead to a further shift towards looser fiscal policy and a larger political risk premium on local financial assets. The demonstrations were …
8th April 2022
Inflation spikes to keep central banks in tightening mode The larger-than-expected rises in inflation in both Chile and Brazil last month (to 9.4% and 11.3%, respectively) support our view that their central banks will raise interest rates by more than …
Inflation has not yet peaked The rise in Mexico’s headline and core inflation in March, to 7.45% y/y and 6.8% y/y respectively, has further to run in the near term as food and energy inflation edges higher. Broader price pressures will also remain strong, …
7th April 2022
Mexican President López Obrador is likely to remain in power after a recall referendum on his position this Sunday, which may embolden him to double down on his interventionist agenda. While a radical shift in policymaking is unlikely, the prospect of …
5th April 2022
Brazil: high inflation raises wage spiral, strike risks The start of a general strike by workers at Brazil’s central bank today to push for an inflation-busting 26.3% pay rise has mainly been a matter of concern for analysts because of the practical …
1st April 2022
Industry still a weak point in the recovery The better-than-expected 0.7% m/m rise in Brazilian industrial production in February was supported by a rebound in mining, which is likely to prove temporary. And surveys point to renewed weakness last month. …
High commodity prices caused by the war in Ukraine have driven a rally in Latin American currencies and equities this month, and are causing exports to surge. Weekly trade figures from Brazil and Chile show that exports were up by 25-40% y/y in early …
31st March 2022
One issue the IMF seems to be glossing over in its latest deal with Argentina (the 22 nd in the country’s history) is that the currency looks overvalued. But the adjustment needed to improve the external position and foster stronger growth will aggravate …
30th March 2022
The Monetary Policy Report released by Chile’s central bank today, following on from its 150bp rate increase to 7.00%, suggests that its tightening cycle is winding down to a close. However, we think that high inflation alongside Chile’s growing external …
Amlo threatens Mexico’s institutions again Yesterday’s comment by Mexican President López Obrador (Amlo) that Banxico would raise its policy rate by 50bp , four hours before the official decision, is not a big deal in itself. But it adds to the sense that …
25th March 2022
Inflation set to jump, Copom to continue hiking The stronger-than-expected Brazilian inflation reading for the first half of March, of 10.8% y/y, will be followed by a jump to 11.5-12.0% in the near term as recent fuel price hikes filter through. While …
Yesterday’s unanimous vote by Mexico’s central bank to raise the policy rate by 50bp, to 6.50%, came as no surprise since it had already been revealed by President López Obrador (Amlo) earlier in the day. While we wouldn’t go as far as to say the central …
Core inflation continues to march higher While Mexico’s headline inflation stabilised at 7.3% y/y in the first half of March, the further rise in the core rate to 6.6% y/y suggests that the central bank is still struggling to keep a lid on price …
24th March 2022
History suggests that for an IMF deal to restore market confidence, a credible shift towards policy tightening which delivers positive economic results, alongside favourable external conditions, is needed. While there are currently tentative steps towards …
23rd March 2022
While the start of a US Fed tightening cycle has historically sent alarm bells ringing in Latin America, the region generally looks well placed to weather any potential storm this time. Chile may be an outlier, though, given its worrying external …
18th March 2022
Economy slowing but external vulnerabilities growing The 1.8% q/q rise in Chile’s GDP in Q4 kept output well above its pre-pandemic trend but, with the economy now coming back down to earth, there is a growing chance of a recession this year. Meanwhile, …
Brazil’s central bank slowed the pace of its hiking cycle with a 100bp hike (to 11.75%) yesterday, but the hawkish tone of the statement suggests that Copom is more concerned about the coming jump in fuel inflation than we had thought. As a result, we …
17th March 2022
Chile’s newly-inaugurated President Boric is inheriting a slowing economy which is likely to slip into a recession this year. But his government will still have to push through significant fiscal tightening to repair the public finances and alleviate …
15th March 2022
Venezuela: in from the cold? A meeting this week between officials from the US and Venezuelan governments could be the first step towards sanctions being lifted on the country. That would be necessary for Venezuela to rebuild its shattered economy over …
11th March 2022
Solid start to 2022, but challenges ahead The unexpectedly-strong 1.0% m/m rise in Mexico’s industrial production in January suggests the economy came through the Omicron wave in decent shape. That said, the fallout from the war in Ukraine war may hold …
Rising inflation to keep Copom’s tightening cycle going The rise in Brazilian inflation to 10.5% y/y in February will be followed by further increases to more than 11% in the coming months on the back of higher fuel prices. While Copom hinted at its last …
We estimate that the impact of higher fuel, food and potentially goods prices triggered by the war in Ukraine will add roughly 1.0%-pt to headline inflation rates across major Latin American economies this year. One key lesson from the past year is that …
10th March 2022
Rising price pressures may prompt more aggressive tightening The rise in Mexico’s headline inflation to 7.3% y/y in February was mainly driven by a jump in the core rate to 6.6% y/y and the fallout from the war in Ukraine will push inflation up further in …
9th March 2022
Economy off to a poor start to the year The larger-than-expected 2.4% m/m fall in Brazilian industrial production in January almost fully reversed the gains made towards the end of last year. And taken together with weak surveys for February and possible …
Argentina’s government reached a fresh IMF deal which, assuming it passes through Congress, will lead to a gradual shift towards more market-friendly policies. However, many of the economic assumptions underpinning the agreement seem overly optimistic and …
8th March 2022
Rally in commodity prices not all good news The recent surge in commodity prices has given a boost to most Latin American currencies and it is generally seen as good news for the region. But we would caution that not all economies will benefit. Prices, …
4th March 2022
Q4 strength unlikely to last The stronger-than-expected 0.5% q/q rise in Brazilian GDP in Q4 was mainly a result of turnaround in the agricultural sector, which is unlikely to be sustained. And in the meantime, high-frequency indicators for the services …
The recent surge in oil prices means that Colombia’s twin current account and budget deficits are unlikely to be a major concern over the next couple of quarters. However, it will still require a sustained fiscal squeeze to prevent the public debt-to-GDP …
3rd March 2022
The good and the bad from high commodity prices The main economic fallout of the Russia-Ukraine crisis on Latin America will come via higher commodity prices, with oil and grains producers set to benefit. But it will also cause inflation to trend higher …
25th February 2022
The easing of Omicron waves, and loosening of restrictions, across Latin America will have given a lift to recoveries in recent weeks, but the fallout from the Russia-Ukraine crisis presents a fresh headwind to the region. While the recent surge in global …
24th February 2022
Rising inflation means Banxico has more work to do The small rise in Mexico’s headline inflation rate to 7.2% y/y over the first half of February was driven by a jump in core inflation to 6.5% y/y, suggesting the central bank is struggling in its battle …
Rising inflation suggests more rate hikes to come The stronger-than-expected rise in Brazil’s inflation to 10.8% y/y over the first half of February is likely to mean that the central bank’s tightening cycle has much further to run. We expect a cumulative …
23rd February 2022
Oil production in Venezuela has been showing signs of life, and there is probably scope for further gains in the near term. But it would require a lifting of sanctions and significant investment over many years to bring production back to levels seen a …
21st February 2022
Colombia’s recovery: set to lose steam The Q4 national accounts figures out of Colombia this week showed a staggering 4.3% q/q rise in output last quarter, taking GDP back to its pre-crisis trend – making it one of the few EMs in this position (and the …
18th February 2022
Persistently high oil prices would bode ill for current account positions in much of Latin America, adding to the existing vulnerabilities in Chile. It would also keep inflation elevated, leading to more aggressive monetary tightening than we currently …
16th February 2022
