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Latin America Weekly Market Economics Summary - 3 July 2017

Core Content Overview

This report provides a detailed analysis of key economic developments and forecasts across several Latin American countries for the week of 3–7 July 2017. The focus is on inflation trends, monetary policy decisions, and economic activity indicators.

Key Events and Insights

Brazil

• Inflation Target Update: Brazil announced more ambitious inflation targets, extending its planning horizon. With inflation expectations below the 4.5% target, the central bank may consider lower interest rates.
• Industrial Production: Expected to show a 0.7% monthly increase in May, translating to a 3.4% annual expansion.
• Inflation Forecast: The IPCA is projected to report the first monthly deflation since 2006 in June, at -0.20% m/m, with annual inflation slowing to 3.04% from 3.60% in May. Further deceleration is expected, reaching 2.7% in August and 3.5% by year-end.
• Political Impact: Reforms are delayed and diluted due to political turbulence, but progress remains possible in other areas.

Mexico

• Monetary Policy Focus: A significant week for monetary policy, with Banxico releasing meeting minutes and CPI data. The minutes are expected to reinforce the decision to wait before cutting rates.
• Inflation Outlook: CPI is forecast to peak at 6.3% y/y in June, then gradually decline to 6% in the next few months, with further disinflation expected in 2018. The consensus expects rates to remain flat near 7%, but the report forecasts a 5% end-2018 rate.
• Economic Activity: Gross fixed investment is expected to contract by -5.9% y/y in April, influenced by the Holy Week holiday. However, it may improve in the second half of the year.
• Consumer Confidence: The consumer confidence index for June is expected to be 86.8, reflecting ongoing economic uncertainty.

Colombia

• Inflation Relief: Inflation is expected to show some relief, with the policy rate likely to fall to 5.25% by year-end.
• Peace Talks: Peace negotiations continue to be a major news topic, with potential positive impacts on confidence and investment if progress is made.

Chile

• Monetary Policy Minutes: The central bank is expected to release minutes that confirm the "on hold" stance, with no immediate rate cut anticipated.
• Economic Activity: Growth is projected to accelerate in May, with a forecast of 1.5% y/y expansion. Retail sales and commercial activity are also expected to show improvement.
• Inflation Moderation: CPI is expected to moderate, with a forecast of 2.2% y/y in June, slightly below the consensus. The report anticipates a gradual disinflation path.

Argentina

• Inflation Expectations: Inflation expectations remain above target for both 2017 and 2018, with the central bank's monthly survey on economists highlighting this.
• Tax Revenue: Expected to rise by 26% y/y in June, driven by strong VAT and social-security revenue, though income tax may still lag.
• Economic Activity: First evidence on June activity is expected, with reports on cement sales and auto production likely to show continued robust growth.

Economic Calendar Highlights

Key Themes and Trends

• Inflation Deceleration: Multiple countries are expected to see continued inflation moderation, with Brazil and Chile likely to report deflation or near-target inflation.
• Monetary Policy Outlook: Mexico and Colombia are anticipated to ease monetary policy gradually, with Mexico potentially cutting rates to 5% by 2018.
• Economic Activity: Industrial production and economic growth are expected to show signs of improvement, especially in Brazil and Chile.
• Political and Structural Factors: Political uncertainty and structural changes are influencing inflation and policy decisions, particularly in Brazil.

Conclusion

The week presents a mix of inflation data, monetary policy decisions, and economic activity indicators across Latin America. Brazil and Mexico are the main focal points, with both showing signs of inflation moderation and potential for rate cuts. Colombia and Chile also highlight the importance of policy adjustments and economic growth. Argentina's inflation expectations and tax revenue remain key areas of interest.