Macro watch: Mexico Sept CPI; Nicaragua 1H17 GDP, investment

Mexico CPI drops strongly in September

Mexico finally saw a break in this year's steady rise in prices, as annual inflation fell to 6.35% in September from 6.66% a month before, beating private sector estimates on the low side, as earthquake-related suspension of tolls and public transportation fees drove the rate lower.

State statistics agency INEGI reported monthly inflation at 0.31%, compared to the Banorte-IXE and Citibanamex estimates of 0.38% and 0.43%, respectively, where the consensus estimate was roughly 0.43-0.44%.

"We believe the downside surprise in inflation is of a temporary nature," said Citibanamex in a response, noting CPI should revert from the impact of the government fee suspensions, largely tied to the Sept. 19 central Mexican event, by the first half of October.

The bank maintained its estimate of 6.20% year-end annual inflation, citing recent peso depreciation and the possibility of higher gasoline prices as upside risks in the coming months. Banorte-IXE said 2017 inflation would come in even higher at 6.40%.

Research firm Capital Economics, however, sees the decline in September as part of a broader trend, culminating in the removal of the negative basis of comparison at the start of 2018, a year after the introduction of the country's fuel price liberalization initiative and the start of the Trump administration in the US.

"The drop in Mexican inflation last month is likely to be the start of a rapid downward trend and we expect the headline rate to fall back into the central bank's target range by the middle of next year. Even so, interest rate cuts are unlikely to come onto the agenda for a while yet," said the Capital Economics note.

Nicaragua GDP, investment rise in 1H17

Nicaragua's central bank reported the economy grew 5.4% in 1H17, backed by a 5.6% increase in fixed investment over the period, signaling some acceleration from the 4.7% GDP growth seen in 2016.

Some deceleration was recorded on a quarterly basis, as annual GDP fell to 4.3% in 2Q17 from 6.6% in 1Q17.

Construction led expansion of fixed investment in the first half of the year, increasing 9.3% over the same period of 2016, this coming despite a 2.2% decrease in acquisition of machinery and equipment and a 3.5% drop in gross capital formation.

The latter was related to declining inventories, as exports rose a hefty 15.4% exports in the period.